Intel Sheds McAfee Majority Stake Amid Failed Synergies

Chipmaker’s $7.7 billion investment in security firm did not deliver as expected, analysts say

Intels decision this week to sell a majority stake in its McAfee subsidiary to asset firm TPG for $3.1 billion gives Intel a way cut losses on what many agree has been an underwhelming investment for the company.
Intel acquired McAfee for about $7.7 billion in August 2010. Company officials at the time had
described
the acquisition as bolstering Intel’s security capabilities in key areas like wireless mobility and the emerging market for the Internet of Things. The company had touted the investment as evidence that it had made security a strategic focus area along with energy-efficient computing and Internet connectivity.
Intel’s
disclosure
this week that it has agreed to sell 51% of its McAfee stake shows that the acquisition failed to live up to those expectations.
“The McAfee and Intel deal never really delivered on any synergies,” says Jon Oltsik, an analyst with Enterprise Strategy Group. In recent times, the McAfee unit has in fact been somewhat languishing in the market as Intel focused on another more immediate strategic concerns. “This move gives McAfee the ability to turn things around,” Oltsik says.
Under the agreement announced this week, Intel will get $3.1 billion and retain 49% of its stake in McAfee. TPG will make an equity investment of $1.1 billion and own 51% of the newly spun-off security firm.
Chris Young, senior vice president and general manager of the Intel Security Group, will become the new CEO of McAfee.
In announcing the deal, Intel CEO Brian Krzanich positioned McAfee as one of the largest pure-play security vendors in the market and predicted that it would thrive as an independent company with the backing of TPG and Intel.
Rumors about Intel planning to divest its security business have been circulating for several weeks now. Wall Street analysts had
suggested
that such a move would not be surprising considering that McAfee’s profit margins were much lower than that generated by Intel’s hardware business, and the uneasy fit between McAfee’s software technology and Intel’s core business.
“Spinning McAfee out as a separate entity is the right move for Intel,” says Richard Stiennon, a former security analyst and chief strategy officer of Blancco Technology Group. “It was a poorly contrived strategy -- if you can even call it that -- where they haphazardly combined anti-malware with silicon. It was doomed from the start and should never have happened in the first place,” Stiennon says.
But as a standalone cybersecurity company, the new McAfee will have its work cut out trying to compete in a market that demands innovation and nimbleness, he notes.
Oltsik believe that an opportunity still exists for McAfee to leverage its technology expertise and establish itself as an enterprise-class vendor. But it may first need to acquire some technologies to fill in gaps in its product portfolio, he says.
“I don’t think this impacts McAfee enterprise customers,” Oltsik says. “If anything, it’s a positive step in that McAfee will be more attentive and focused. I’ve heard some stories about support problems over the past few years. Now McAfee can focus on its customers and fix these problems.”
Intel’s experience with McAfee could serve as a cautionary tale to companies making security acquisitions without thinking through whether its a fit with their existing business, says Pete Lindstrom, an analyst with International Data Corporation. But the spinoff should cause little disruption for customers, he adds.
“McAfee is large enough and mature enough to run its business with little impact to its customers,” Lindstrom says.
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Intel To Purchase McAfee For $7.68 Billion In Cash

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Intel Sheds McAfee Majority Stake Amid Failed Synergies