The tug-of-war between Network Associates ( NET) and McAfee.com ( MCAF) may finally be coming to an end with a new sweetened bid Tuesday from Network Associates to buy its spinoff for stock and cash. Security software maker Network Associates offered to pay 0.675 of a share of its stock plus $8 in cash for each outstanding share of McAfee it does not already own. The new offer represents a 20% premium over Monday's closing price of McAfee shares and is valued at about $185 million. Network Associates extended its offer, previously set to expire at midnight Aug. 13, to midnight Sept. 12. The Santa Clara, Calif., company has been trying since March to acquire the 25% of McAfee shares it does not already own, but it temporarily abandoned the effort earlier this year after disclosing accounting restatements and an investigation by the Securities and Exchange Commission, which is still ongoing. "This is a fair offer," Network Associates CEO George Samenuk said in a conference call Tuesday morning. "This is also our best and final offer." Samenuk said he believes the offer will be "well-received" by McAfee and expects a special committee of the company's board members to make an announcement on it in the next few days. The deal would dilute pro forma earnings by a penny in fiscal year 2003 and by 2 cents in fiscal year 2004, Network Associates said. Analysts believed the
previous offer by Network Associates -- to pay 0.90 of a share of its stock for McAfee -- was too low because it priced McAfee shares at a discount. Shares of Network Associates have actually fallen to a lower price than McAfee shares. Network Associates reported Tuesday that only 3% of McAfee shares not owned by the software maker were tendered for its previous offer. That actually represents a drop from 4% reported July 31, suggesting some McAfee shareholders may have changed their minds. Shares of Network Associates were down 46 cents, or 4.2%, to $10.55 in recent trading, while McAfee shares rose $2.21, or 17.2%, to $15.05. Now the deal to acquire McAfee, which sells security software via the Internet, looks more likely to go forward. In a note Tuesday morning, Legg Mason analyst Todd Weller said the raised offer "should close the curtain." "We believe the NET-MCAF deal will likely get done and that it should remove one of the overhangs on NET's stock," Weller wrote. "We like the use of cash and the lower exchange rate, given the depressed levels of NET's stock, and we continue to believe the recombination of the two companies makes sense from both a business and customer standpoint, especially with respect to the consumer and SME or small and medium-sized enterprise antivirus market segment." Weller has buy ratings on Network Associates and McAfee, and his firm hasn't done any banking with either company. A.G. Edwards analyst Robert Breza agreed that the acquisition of McAfee would help Network Associates better compete against Symantec ( SYMC), which is a larger player in the consumer market. Breza, who has a buy rating on Network Associates for speculative investors, said the company has a compelling valuation, with its market cap recently at 2.1 times his 2003 revenue estimate vs. a group mean of 3.3, and with a P/E ratio of 15.7 times his forward earnings estimate, which is a discount to the group mean of 21.3. A.G. Edwards hasn't done any banking with Network Associates.