In a statement Wednesday, the companies said that Network Associates will now offer 0.78 of a share for the outstanding shares of McAfee. The latest offer is 15.6 percent higher than the original bid.
Based on Network Associates' closing price of $22.50 on Tuesday, the offer values McAfee at $17.55. McAfee closed at $16.50 Tuesday.
The increased exchange offering won over an independent committee that represented McAfee, a spinoff of Network Associates. The committee, which called the latest offer "adequate," initially rejected its parent's first offer of 0.675 a share.
Network Associates spun off McAfee three years ago at the height of the dot-com boom. At the time, Network Associates was struggling and saw a spinoff as a good move for its Internet operations. Since the split, both have done well, as the parent company focused on the enterprise market, and McAfee targeted consumers and small businesses.
Although a committee said that the Network Associates offer was on target, the deal still depends on getting McAfee shareholders to tender their shares. Network Associates owns about 75 percent of McAfee already and needs to reach 90 percent to seal the deal, analysts said. The tender offer expires on April 25, and shareholder reaction could still be a wild card.
"The market was telling us that the previous bid wasn't good enough," said Todd Weller, an analyst with Legg Mason.
If the deal goes through, it will cap a turbulent offering process. Last month, Network Associates made its, and investors sent McAfee shares sharply higher. McAfee's committee, however, rejected the offer as "financially inadequate." A few days after the rejection, Network Associates announced it was being by the Securities and Exchange Commission for accounting issues in 2000.
A day after the SEC investigation was disclosed, Network Associates renewed its exchange offer for McAfee, but didn't raise its bid. On a conference call, Network Associates CEO George Samenuk said he was confident that the accounting issues are restricted to 2000, before his tenure. Network Associates also said that the SEC investigation doesn't reflect on McAfee.
Despite the rocky road for the offering, analysts said that the move by Network Associates to reel in McAfee makes sense. For starters, McAfee is dependent on Network Associates for its brand name and licenses technology from its parent, the company said in regulatory filings. McAfee also has arrangements with Network Associates that could face tougher terms if the companies completely split.
Weller said the combination works because it will give Network Associates a new market to target and complement its retail software business. "McAfee was spun off in the Internet era," said Weller. "They are looking back now and wishing it was never spun out."
More details about the companies' prospects will be revealed shortly. McAfee reports its first-quarter earnings after market close Wednesday, and analysts expect the company to report earnings of 6 cents a share. Network Associates is expected to report first-quarter earnings Thursday, and analysts are expecting it to report a profit of 7 cents a share, according to First Call.