Computerworld recommends 'no' vote on NAI deal

The special committee of the board of directors of Corp. Tuesday recommended that its shareholders vote against the proposed deal in which parent company Network Associates Inc. would have purchased the 25 percent of shares in that it does not already own.

The recommendation against the move comes despite an increase in Network Associates' (NAI) offer from 0.78 of a NAI share for each outstanding share of to 0.90 of a NAI share.

The new offer "significantly undervalues", according to a statement released by the Sunnyvale, California, company.'s committee, which is distinct from the McAfee Security division of NAI, rejected the deal because the company is experiencing strong subscription growth in its managed security services business, and because of what it called a decline in IT spending in the enterprise where NAI plays heavily. Also, said it has greater value as an independent company than as part of NAI based on the offer price. NAI's share price is also significantly down in the last few months, dropping the value of the deal, the company said.

The differing financial positions of the companies played a major role in the board's recommendations, said Srivats Sampath, chief executive officer of Even though NAI met the market's expectations for its second quarter earnings, the company has "negative business momentum," he said., on the other hand, "(has) executed phenomenally on the business plan," Sampath said.

The statement from's special board came only hours before the company was due to file documents with the U.S. Securities and Exchange Commission disclosing its position on the proposed deal.'s decision is "disappointing to us," said Kent Roberts, NAI executive vice president and chief counsel.

Nonetheless, NAI will continue with the offer of 0.90 of a NAI share and will make its case to the shareholders, he said.

"This is a very good offer," he said.

Despite the disagreement about the deal, neither side thought that the relationship between the companies would be affected.

NAI wants to bring back into the corporate fold to cut down on consumer confusion between and McAfee Security, as well as to target the consumer and small-to-medium business market more strongly. NAI used to own all of until NAI spun it off.'s decision comes as something of a surprise as the board had agreed to an earlier buyout in which shareholders would have received 0.78 shares of NAI stock for each share they owned. NAI was forced to withdraw that offer, however, after it revealed that accounting irregularities would require the company restate its financial reports for 1998, 1999 and 2000. It recommenced that bid, with the same terms, at the beginning of July. The deal rejected Tuesday by is the third time that NAI has launched a tender offer for its subsidiary. NAI had originally offered 0.675 of NAI for each share, but that figure was rejected as inadequate by in March. Network Associates' executives had previously been confident that the buyout would go through. shareholders still have to vote on the matter and could reject the board's recommendation. shareholders must vote whether or not to tender their shares to NAI by July 30, Sampath said. If NAI receives a majority of the votes, or manages to up its stake in from 75 percent to 90 percent by July 30, the deal will go through, he said.

NAI's Roberts expects shareholders to approve the deal.

The deal "is not conditioned on (the board's) approval," he said. "The real decision-makers are the shareholders of"'s Sampath agreed.

"It's in the hands of the shareholders," he said. "If they say (the merger) is what they want, that is what we should give them."

In mid-day trading, (MCAF) was up $0.49, or 4.48 percent, to $11.43. Network Associates (NET), however, was down $0.66, or 5.18 percent, to $12.09.