The haggling continued Tuesday between

Network Associates

(NET) - Get Report



as the McAfee board of directors rebuffed a sweetenedpurchase offer from majority owner Network Associates.

The McAfee board said Network Associates'

latest offer to exchange 0.90 of a share of Network Associates stock for every share of McAfee it does not already own is "inadequate," "highly conditional" and "not in the best interests of's stockholders, other than Network Associates and its affiliates."

The McAfee board is recommending that McAfee stockholders rejectNetwork Associates' offer and not exchange their shares. Network Associatesowns 75% of McAfee shares.

Among other reasons, McAfee said its opinion is based on the beliefthat resolution of a pending

Securities and Exchange Commission

of NetworkAssociates' accounting could require additional financial restatements andincrease litigation costs. McAfee also said its stock price has beenartificially depressed by a previous offer from Network Associates and doesnot reflect its appropriate value.

In addition, McAfee said the opinion of Morgan Stanley that the offeris inadequate will be detailed in a filing Tuesday with the SEC.

Network Associates' latest offer came Monday, two days after proposingan 0.85 exchange offer in an email Saturday. The offer is conditioned onMcAfee not adopting any "structural defense, including the adoption of ashareholder rights plan," Network Associates said in a press releaseMonday.

Based on Monday's closing prices, the 0.90 exchange ratio offers apremium of 55 cents a share to McAfee stockholders. But the total pricestill comes in at only $137.7 million.

On July 1, Network Associates announced its third bid to buy 25% ofMcAfee that it doesn't already own. The company offered to pay 0.78 of ashare of Network Associates for every outstanding share of McAfee commonstock in a deal valued at $180.4 million based on June 28 closing prices.

That was the same sweetened exchange ratio previously offered byNetworkAssociates on April 10 and was a slight premium over McAfee's June 28closing price. But it is lower than the April 10 offer, worth $224 million,because Network Associates' stock price has fallen.

Network Associates abandoned its previous attempt to buy back McAfee,which it spun off during the dot-com boom to sell security software via theInternet, because it was forced to restate financial numbers. NetworkAssociates is still being investigated by the SEC.

Network Associates shares have dropped 42.4% since April 10, whileMcAfee shares have lost 36.3% of their value.

Shares of Network Associates fell 65 cents, or 5.1%, to $12.10 inrecent trading. McAfee shares rose 45 cents, or 4.1%, to $11.39 in recenttrading.