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December 1, 1997updated 01 Sep 2016 6:13pm

NETWORK ASSOCIATES BORN, ACQUIRES PRETTY GOOD PRIVACY

By CBR Staff Writer

Network Associates Inc was officially born yesterday, as the merger between McAfee Associates Inc and Network General Co (CI No 3,267) closed earlier than anticipated. The new company wasted no time in getting down to business by acquiring encryption expert Pretty Good Privacy Inc for $35m in cash. Network Associates says it has transition teams already in place to insure a smooth start in its new life, with product and sales schedules for the current quarter and beyond on track. It will begin trading on Nasdaq today under the symbol NETA. The cash acquisition of PGP – handled that way because of the current low value of the post-merger company’s stock (CI No 3,288) – is expected to round out the company’s product line in the area of network security. NAI is looking toward a suite-based approach to encompass the five key areas of authentication, encryption, firewalls, intrusion detection and anti-virus protection. To leverage the PGP name, the suite will likely be called the Pretty Good Privacy Total Network Security Suite. NAI is looking at a subscription-based pricing model, and says it has received a lot of positive feedback from customers. The suite would be available in both LAN and WAN flavors, and NAI feels that subscription-based pricing give the customer added flexibility in evaluating its security needs. Out of the five areas its wants to cover, NAI is seemingly weak in the firewall area. It says it could build its own, acquire a firewall company or find a partner to cover that need. It is currently evaluating all of those options. The PGP acquisition, a done deal after two-to-three weeks of negotiations, is expected to be non-dilutive. NAI will take a hit of $30m this quarter for the write off in-process research and development. Coupled with the charge of $90m-$100m stemming from the merger with Network General, a sizable net loss is on the horizon. Charges aside, NAI says it is comfortable with current estimates for the quarter of earnings per share of $0.47 on revenues of about $168m-$172m. PGP should be only slightly cash-positive this quarter, but NAI is looking towards eight-digit revenue growth quickly next year on the strength of new products of its own and from PGP. The company says that a small number of jobs might be lost on January 1 in the general, administrative and accounting sectors. But it also says that if it achieves its revenue goals about 1,000 new sales and engineering staff will have to be taken on next year.

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