A bailout by any other name...
Technically, this isn't a bailout. McAfee is acquiring a network security business with several technically advanced products and services under its belt. Topping the list is TrustedSource, which acts like a credit check for data traveling across a network. Bits sent from an address with a reputation for spreading malicious content get stiff-armed at the network gateway.
Other Secure Computing products including the Sidewinder firewall and the WebWasher filtering system, which upstart Finjan claims violates its patents. McAfee's purchase suggests that the in-process litigation between Finjan and Secure either will soon be settled, or is not as serious as some might believe.
So why even refer to this as a bailout? This isn't Bank of America (NYSE: BAC ) rescuing Merrill Lynch. Nor is it perfectly reminiscent of the combine-before-we-die mishmash that led to Sirius XM (Nasdaq: SIRI ) .
Yet Secure Computing's financials have been anything but secure in recent quarters. Debt plagued its balance sheet before Aladdin Knowledge Systems (Nasdaq: ALDN ) agreed to pay $65 million in cash for its SafeWord authentication technology. Free cash flow -- once a staple of the business -- went missing in the second quarter.
At the same time, big competitors such as Cisco (Nasdaq: CSCO ) , McAfee, and Symantec (Nasdaq: SYMC ) have been toying with greater investments in network security. CEO John Thompson told MarketWatch in August that Symantec would be looking at cash-starved peers; observers considered Secure Computing a prime target.
There's rain in those clouds
No longer, McAfee wins the prize. Will the purchase be worthwhile to investors? I think so. Security remains critical, because digital attacks are on the rise worldwide. Some recent headlines:
- "Malware Poses as iPhone Game," eWeek, Sept. 18, 2008
- "Hacked Texas National Guard site serves up malware," ComputerWorld, Sept. 18, 2008
- "Brad Pitt named as top malware lure," InfoWorld, Sept. 17, 2008
You read that right. Hackers are using Mr. Angelina Jolie to spread digital nastiness. Wonderful.
Overall, researcher Webroot says that 85% of malware -- otherwise known as any combination of bits and bytes whose purpose is to compromise your system or data -- is now distributed via the Web. It's as strong an argument as I've yet seen for the TrustedSource technology.
How will McAfee implement it once it takes control? The press release announcing the deal refers to extending McAfee's "in-the-cloud" security as a service offering, which, in turn, is an allusion to Artemis -- a process for fingerprinting data in real-time using a Web-connected database. TrustedSource should make the database richer.
Old rebels die hard
And for those Rule Breakers subscribers who hung on even after we sold? They're getting $5.75 a share, a 23% premium to yesterday's close, and 8% higher than our selling price. Not a bad deal in a market where tech is tanking right alongside everything else.
The price might have been higher save for the $84 million in preferred equity on Secure Computing's books, taken on to fund the purchase of TrustedSource from CipherTrust in 2006.
Therein lies the tragedy of this stock market story. Secure Computing acquired a compelling technology, and built a decent offering around it. But never took those assets to a higher level, and returns suffered.
I guess that's why we call these things bailouts. Chalk up another one.