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McAfee Urges No Action on Buyout Bid

Anti-virus software specialist McAfee.com has advised shareholders to await a recommendation from its board of directors before acting on an unsolicited buyout bid from parent company Network Associates.

The $208 million share exchange offer, which commenced last Friday and expires on April 12, represents a premium of almost 20 percent based on McAfee's closing price on March 15 but McAfee's board argued that the price tag is "financially inadequate."

The Sunnyvale, Calif.-based McAfee said a special board committee would continue to review the Network Associates offer and make a recommendation before April 11. Because Network Associates would be purchasing the remaining shares from shareholders, a decision from McAfee's board has no direct bearing on the proposed acquisition.

Network Associates, which already owns about 75 percent of McAfee, had earlier indicated it would suspend the buyout bid because of an ongoing SEC investigation into its accounting practices.

However, because the SEC investigation could go on for a long time, the company reversed that decision and press ahead with plans for the acquisition.

The formal SEC probe is believed to be centered around accounting practices during fiscal year 2000 when a $120 million sales shortfall and shareholder lawsuits over its revenue recognition policy forced a top-level management shakeup.

The lawsuits, which are still pending, have accused Network Associates of "channel stuffing," where revenues were recognized for products sold into the distribution channel, which were subject to return.

Network Associates said the decision to acquire the remainder of McAfee.com was an attempt to streamline operations and eliminate confusion across business units. "This recombination is intended to deliver on the promise we made 14 months ago to focus Network Associates on customer needs, eliminate confusion across business units, and streamline our operations," said Network Associated CEO George Samenuk.

If the exchange offer is successful, Network Associates would own at least 90 percent of all outstanding shares of McAfee.com common stock. It plans to effect a "short-form" merger of McAfee.com with a Network Associates subsidiary.

Separately, McAfee announced it had signed up more than one million customers into its recurring subscription program which automates the renewal process for virus software services.

McAfee, which sells anti-virus protection software and other security services from its Web site, said the program would automatically renew a significant portion of McAfee's existing subscriber base and further remove the onus from the subscriber when it comes to maintaining computer security.

"We implemented this program during the third quarter of 2001 to provide our customers with continuous protection against Internet threats while further simplifying the process of protecting their computers and the information that resides on them," said Srivats Sampath, CEO of McAfee. "We are very excited with the success of this program. This is another step toward making security as simple as possible and ensuring consistent protection."

McAfee counts more than 1.3 million paid active subscribers for its services.