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Instant Analysis: Who Tried To Buy FireEye Inc?

By Leo Sun – Jun 17, 2016 at 6:43PM

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Is this cybersecurity firm a hot buyout target?

Shares of FireEye (MNDT) rose 4% on June 16 after a Bloomberg report claimed that the cybersecurity company had "rebuffed takeover proposals from multiple parties earlier this year." The report, which cites unidentified sources, claims that FireEye rejected at least two suitors that made offers below its expectations of $30 or more per share.

Image source: Getty Images.

Who were the suitors?

One suitor has been identified as Symantec (GEN 0.57%), which recently agreed to buy cybersecurity company Blue Coat for $4.65 billion. Buying Blue Coat gave Symantec cloud and network-based security solutions to complement its own security solutions for PCs, data centers, email, and mobile devices. But acquiring FireEye would also give it "best in breed" proactive threat prevention services which are certified by the U.S. Department of Homeland Security.

The other suitor wasn't named, but previous rumors suggested that networking giant Cisco (CSCO 0.35%) was interested. Cisco's security portfolio, which was beefed up by its acquisitions of SourceFire and ThreatGRID, generated $1.4 billion in the first nine months of fiscal 2016. Adding FireEye's tools to that mix would make its bundles of networking hardware, software, and security solutions more attractive to enterprise customers.

But were FireEye's expectations too high?

However, it might have been unrealistic for FireEye to expect anyone to bid over $30 per share (about $4.4 billion) for the company. Its stock currently trades at under $17, a discount to its IPO price of $20.

FireEye is unprofitable, and its rapid cash burn rate has resulted in secondary and convertible debt offerings. Its longtime CFO resigned last July, and CEO Dave DeWalt recently stepped down. Last quarter, billings and revenue growth both slowed down considerably compared to the prior year quarter. Those negative signs indicate that FireEye stock could slide further and be acquired at a lower price. However, Bloomberg claims that FireEye is no longer trying to sell itself under its new CEO Kevin Mandia.

The key takeaway

FireEye has fallen nearly 70% over the past 12 months due to its slowing growth, and investors shouldn't believe that any rumor-based rallies are sustainable. For now, investors should see if FireEye's cloud-based subscription efforts can stabilize its growth, boost its margins, and slow its cash burn rate over the next few quarters.


Leo Sun has no position in any stocks mentioned. The Motley Fool owns shares of and recommends FireEye. The Motley Fool recommends Cisco Systems. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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