Network Associates, citing newly unearthed accounting inaccuracies, has withdrawn its bid for an additional stake in its McAfee.com subsidiary.
The security software company said Thursday that during an amendment of its 1999 tax return it discovered accounting inaccuracies in its 1999 and 2000 financial statements that will require the restatement of results for those periods. The company had already announced that it was being investigated by the Securities and Exchange Commission for accounting issues in 2000.
Because of the anticipated restatement, Network Associates, which already owns 75 percent of McAfee.com, said it would retract its offer to buy the remaining 25 percent of the subsidiary in a stock swap valued about $224 million. The offer was set to expire at midnight Thursday.
"The McAfee.com offer is done right now. Done," Network Associates CEO George Samenuk said during a conference call with analysts and journalists Thursday.
Network Associates is conducting an internal investigation to determine the scope of the accounting inaccuracies. Executives said the company would offer an update in about three weeks. But so far, the company said it believes its 2001 and first-quarter 2002 financials will not require restatement.
Network Associates spun off McAfee.com three years ago with high hopes for its Internet operations. With the parent company focusing on the enterprise market and McAfee targeting consumers and small businesses, both did well.
In the first quarter of 2002, excluding results for McAfee.com, Network Associates posted a pro forma profit of $15.9 million, or 9 cents per share, on revenue of about $202 million--improvements in both cases compared with the same period a year earlier. McAfee.com, meanwhile, posted a pro forma profit of $3.9 million, or 8 cents per share, and saw revenue jump 46 percent from the year-earlier period to $18.8 million.
The withdrawal puts the kibosh on a deal that had finally seemed to be going Network Associates' way. In early April, McAfee.com's board agreed to the acquisition after rejecting an earlier offer as "financially inadequate."
Network Associates also said the SEC investigation doesn't reflect on McAfee.com and that it has informed the SEC of its internal investigation.