Pursuant to Rule 425
under the Securities Act of 1933 and
deemed filed pursuant to Rule 14d-2(b) under
the Securities Exchange Act of 1934
Filing Person: Networks Associates, Inc.
Subject Company: McAfee.com Corporation
Subject Company's Commission File No.: 00-28247
Date: March 21, 2002
NETWORK ASSOCIATES
MODERATOR: KELLY BLOUGH
MARCH 18, 2002/7:30 A.M. CST
PAGE 1
The following is a transcript from a conference call held on March 18, 2002.
NETWORK ASSOCIATES
MARCH 18, 2002
7:30 A.M. CST
Coordinator Good morning, and welcome to the Network Associates conference
call. At the company's request, today's conference is being
recorded. Following today's presentation, there will be a
question and answer session.
Now I'd like to turn the meeting over to Miss Kelly Blough,
Vice-President of Investor Relations. Ma'am, you may begin.
K. Blough Thank you, Dan, and thank you, callers, for joining us today.
Today we are announcing the proposed exchange offer by Network
Associates for the publicly traded shares of McAfee.com.
Joining for this call is our Chairman and CEO, George Samenuk,
our Executive Vice-President and General Counsel, Kent
Roberts, and our Chief Operating Officer and Chief Financial
Officer, Steve Richards.
NETWORK ASSOCIATES
MODERATOR: KELLY BLOUGH
MARCH 18, 2002/7:30 A.M. CST
PAGE 2
I'm will now read the safe harbor statement and then we'll
pass the call to George. This conference call will contain
forward-looking statements. These statements are based on
management's current expectations and are subject to
uncertainty and changes of circumstances. Forward-looking
statements include those related to the proposed exchange
offer, the anticipated benefits of the transaction, and its
financial impact on Network Associates' operating results.
Actual results may differ materially.
The exchange offer is expected to commence on or about March
25, 2002. In connection with the proposed transaction, we will
file an exchange offer prospectus and related materials with
the Securities and Exchange Commission. Investors and security
holders are advised to read these documents when they become
available because they will contain important information
about the proposed transaction. Information on risks and
uncertainties related to the proposed transaction, the
company, and its business can be found in the prospectus and
in the company's quarterly and annual reports filed with the
US SEC. Now I will turn the call over to George.
G. Samenuk Thank you, Kelly. Good morning, everyone, from New York.
This morning we announced a proposed recombination of Network
Associates
NETWORK ASSOCIATES
MODERATOR: KELLY BLOUGH
MARCH 18, 2002/7:30 A.M. CST
PAGE 3
and McAfee.com. In the transaction, McAfee.com's stockholders
will receive 0.675 shares of Network Associates common stock
for each share of McAfee.com tendered. Kent Roberts is here
with me, and in a moment he will go into some of the technical
details of this offer.
As many of you know, since early 2001 our management team has
taken bold steps to focus this company on its core strengths.
Specifically, we have integrated the myCIO offerings into our
McAfee business unit. This continued product lines where we
didn't have a leadership position in a market or a clear path
to getting there. Closed the PGP business unit and integrated
technology from PGP into our McAfee business unit and sold our
Gauntlet Firewall business. All of these actions were designed
to serve our customers better by focusing our product
offerings and eliminating overlapping business objectives. The
proposed recombination is consistent with this strategy.
As you know, McAfee.com, our publicly traded business unit,
offers products and services to consumers and to small and
medium sized businesses. McAfee.com's initial mandate was to
offer our products and services, primarily anti-virus, to
consumers over the Internet using an ASP business model and to
develop the required technology to do so.
NETWORK ASSOCIATES
MODERATOR: KELLY BLOUGH
MARCH 18, 2002/7:30 A.M. CST
PAGE 4
McAfee.com has shown that this is a viable business model. In
fact, we use the ASP model to offer managed services to our
enterprise customers through McAfee ASAP. We also offer
consumer anti-virus products. We are proposing the
recombination because we believe accommodation benefits the
combined the company through: number one, the reduction or
elimination of customer, market, and brand confusion due to
the similarity in our products, names, and Web address; two,
the expectation that a recombined company could more
effectively and cost-efficiently target the consumer market
and the small to medium sized market for ASP products and
services, and three, the reduction or elimination of actual
and potential conflicts between us and our sales forces and
related management distraction due to confusions over market
boundaries. There are also some possibilities for reduced
costs at this combined company.
We believe that this offer should be attractive to McAfee.com
stockholders for the following reasons. One, the exchange
ratio reflects a premium of approximately 20% over the closing
market price of McAfee.com's shares on March 15, 2002, the
last trading day prior to announcement of the offer. Two, the
recombination offers McAfee.com stockholders through ownership
of Network Associates common stock the ability to participate
in McAfee.com's business and our enterprise,
NETWORK ASSOCIATES
MODERATOR: KELLY BLOUGH
MARCH 18, 2002/7:30 A.M. CST
PAGE 5
anti-virus, and other businesses. Three, the exchange will be
tax free to McAfee.com stockholders in the US, and four, the
market for McAfee.com's stock is illiquid compared to the
market for our common stock. I would like now to transfer the
call over to Kent Roberts for more details about this offer.
Kent.
K. Roberts Thank you, George. As George mentioned, we plan to commence
the tender offer on March 25, 2002. On that date, we will make
filings with the SEC, which will provide greater detail about
the offer. Assuming the offer's commenced on that date, we
would hope to complete the offer on April 19th. In addition to
customary conditions, our offer's conditioned on the tender of
enough shares of McAfee.com stock so that after the offer's
completed we would own at least 90% of all of the outstanding
shares of McAfee.com. Network Associates currently owns 36
million share of McAfee.com, or approximately 75% of
McAfee.com's total outstanding shares.
If the conditions to the offer are met and the offer is
completed, we plan to affect a short-form merger of McAfee.com
and a wholly owned subsidiary of Network Associates. This
would happen shortly after the completion of the tender offer.
Unless appraisal rights are protected, those McAfee.com
NETWORK ASSOCIATES
MODERATOR: KELLY BLOUGH
MARCH 18, 2002/7:30 A.M. CST
PAGE 6
shareholders who do not tender their shares pursuant to the
offer will receive in the short-form merger the same number of
shares of Network Associates' stock that they would have
received if they had tendered their McAfee.com shares.
In the merger, Network Associates will also assume
McAfee.com's stock option agreements. Holders of McAfee.com's
stock options will receive options to acquire Network
Associates shares with the number of shares eligible for
purchase modified based on the exchange rate. Exercise
investing provisions will be based on the terms of the
original stock option agreement and related documentation.
Please note that our offer is being made directly to
McAfee.com's shareholders. They are free to accept or reject
the offer, as they deem appropriate. The offer does not
require the approval by the Board of Directors of McAfee.com.
We are not seeking the approval of McAfee.com's Board of
Directors, and we have not negotiated the offer with
McAfee.com or its Board.
Within ten business days of our commencement of the offer,
McAfee.com's Board will be required under SEC rules to either
a) make a
NETWORK ASSOCIATES
MODERATOR: KELLY BLOUGH
MARCH 18, 2002/7:30 A.M. CST
PAGE 7
recommendation for or against the offer, b) state that it is
neutral, or c) state that it is unable to take a position with
respect to the offer. It will then be required to file with
the SEC a formal statement describing its position. Because of
their relationship with Network Associates, George Samenuk and
Steve Richards who both sit on the McAfee.com Board will not
be participating in developing McAfee.com's position. I would
now like to turn the call over to Steve Richards to discuss
the financial impact of the offer and merger.
S. Richards Thank you, Kent. I'd like to start off by saying that we do
not intend to use this opportunity to update our guidance on
the current quarter or the year, and we will not entertain any
questions regarding the expectation of our results. With that
in mind, if the offer and merger are completed, approximately
eight million shares of Network Associates common stock are
expected to be issued. In addition, we will be assuming
options to acquire approximately 3.8 million shares of
McAfee.com stock options, which will be converted to 2.6
million options on Network Associates' shares in the exchange
ratio.
The transaction is expected to result in approximately a penny
per share reduction in the 2002 pro forma earnings for the
consolidated entity due to
NETWORK ASSOCIATES
MODERATOR: KELLY BLOUGH
MARCH 18, 2002/7:30 A.M. CST
PAGE 8
the impacts of these additional shares. 2002 pro forma
earnings for the consolidated entity include ours and
McAfee.com's previously released expected operating results
for 2002 and exclude interest expense on a convertible debt,
amortization expense, compensation charges related to employee
stock options, and one-time charges. We will provide more
detail on the financial impact of the transaction when and if
the transaction is completed.
K. Blough That concludes our remarks for this morning. Operator, please
poll for questions.
Coordinator Our first question comes from Sterling Audie of J.P. Morgan.
S. Audie A couple of questions; I think one of the ones that's big on
investors minds this morning is, why now? Secondly, Steve,
maybe you could talk about a little bit more color on
potential synergies?
G. Samenuk We, and the Board, thought it was an opportune time to look at
doing this transaction. It's something that we've been
considering, and people have been asking us for a long time.
It just made sense to do it now based on the timing of our
business. We've been carefully calculating these
NETWORK ASSOCIATES
MODERATOR: KELLY BLOUGH
MARCH 18, 2002/7:30 A.M. CST
PAGE 9
changes every quarter since January of 2001, so that we do not
disrupt a quarter, and we felt and the Board felt it was an
opportune time to complete this transaction and move forward
with 2002 and beyond.
S. Audie Just as a quick follow up to it, if we look at new subscriber
growth at McAfee.com, the stock has come back a ways because I
think there were some unrealistic expectations as to what
subscriber growth in the December quarter was. I think there
were a lot of questions as to how it's tracking thus far in
the quarter. Is there any detail you can add? Was there any
consideration as to how the business on their side was verses
the transaction?
G. Samenuk No. We're excited about the business. We think that we caused
confusion in the marketplace with McAfee for Corporate, McAfee
Retail Box Sales, and McAfee.com. This recombination gives us
the ability to really straighten out where McAfee fits for all
sizes of our customers and clearly gives us the synergy to
bring two great companies together to make one great company.
S. Audie Steve, on potential synergies, is there any color that you can
add where those might come from?
NETWORK ASSOCIATES
MODERATOR: KELLY BLOUGH
MARCH 18, 2002/7:30 A.M. CST
PAGE 10
G. Samenuk Sterling, this is.... On that question, we've looked at the
two different companies, but because we are still two separate
companies, the only observation I'll give you is, obviously,
we are running two separately publicly held companies, and
there's certain some overlap in terms of services there. Until
the deal is actually completed, we really aren't in the
position to be giving guidance on what the potential
opportunities there are.
S. Audie I'll hop back in the queue. Thanks, guys.
G. Samenuk Thank you, Sterling.
Coordinator Our next question comes Chris Russ of Wachovia.
C. Russ You had mentioned about a penny of dilution, I think, for the
full year 2002 to consolidate results for Network Associates.
What about in 2003, would you expect at that point you could
see accretion from this transaction?
NETWORK ASSOCIATES
MODERATOR: KELLY BLOUGH
MARCH 18, 2002/7:30 A.M. CST
PAGE 11
S. Richards Chris, Steve. Listen, we have no guidance out there right now
for 2003 for either company, so we really aren't putting any
commitments out there at this time.
C. Russ The penny of dilution this year, is that predicated on $80
million of revenue for McAfee.com?
S. Richards It's predicated on the guidance that both companies have out
there as of their last conference calls.
C. Russ Thanks very much.
Coordinator Our next question comes from Bob Lamb of Bear Stearns.
B. Lamb I apologize for the background noise. I'm on a plane right
now. Steve, can you talk about if this is combination is
successful, how much of your business will come from retail?
The second question is, would there be any change in your
opinion on the competitive landscape?
NETWORK ASSOCIATES
MODERATOR: KELLY BLOUGH
MARCH 18, 2002/7:30 A.M. CST
PAGE 12
S. Richards I missed the last part of that, Bob, but I'll answer the first
part. That would bring retail at approximately 10% to 11% of
the combined company results taking in the McAfee.com piece
plus the existing retail piece.
G. Samenuk I think this just changes the competitive landscape, Bob. I
think this, as we've done in the past, makes it clearer for
our customers to make a Network Associates-McAfee decision. I
think it opens up a lot of possibilities in how we compete
against Symantec and others. Clearly, one combined entity is
more powerful than two smaller entities. I think this will
change the competitive landscape. I think this gives us the
opportunity not only to offer retail, but to offer this
McAfee.com service to many, many users across the world. The
power of our sales people going into a Bear Stearns or a J. P.
Morgan Chase or other large companies and offering in
conjunction with McAfee Corporate the ability to have
employees, tens of thousands or hundreds of thousands of
employees, participate in McAfee.com service is very enticing
to our customers as they've told me the last 15 months. We're
excited about this on the competitive front, Bob.
B. Lamb Thank you.
NETWORK ASSOCIATES
MODERATOR: KELLY BLOUGH
MARCH 18, 2002/7:30 A.M. CST
PAGE 13
Coordinator Our next question comes from Kevin Trozien of Bank of America.
K. Trozien You said you're going to be focusing on the consumer and SME
market. Wondering if you're seeing any shift or excess
strength coming from those markets is part of the reason for
the consolidation of McAfee shares under Network Associates?
Thanks.
G. Samenuk We think that because of the enormous amount of viruses last
year, especially the last three, Code Red, Nimda, and Goner,
there's heightened awareness from people around the world for
this type of service and our products. Frankly, our products
did very well during Nimda, as many of you know from personal
experience. We're going to go at an all out attack on this
consumer and small and medium business space that really
demonstrates to people we are flexible. If you want to buy
retail boxes from CompUSA or Staples or somebody, buy it that
way. If you want to buy an online service that delivers McAfee
anti-virus protection immediately to your desktop or to your
small or medium business then you can do it that way. We're
about flexibility and listening to our customers, and thus
far, our customers are responding to our attempts to service
them.
NETWORK ASSOCIATES
MODERATOR: KELLY BLOUGH
MARCH 18, 2002/7:30 A.M. CST
PAGE 14
K. Trozien Does that mean that we could see more than say 10% to 15% of
your revenue, I believe that's what it is that currently comes
from the consumer market? Is that a fair assessment?
G. Samenuk With the combined entity we have a much greater part of the
consumer business on a consolidated basis, and the opportunity
to grow this business is right in front of us. We're going
after this business very strongly because we believe that it's
an area that's certainly under-penetrated on a worldwide
basis, and that gives us opportunity.
K. Trozien Thank you.
Coordinator Our next question comes from Scott Nicholas of Piper Jaffray.
G. Munster This is Gene Munster. I understand the deal hasn't closed yet,
and there's a lot of synergies, too, to be unveiled, but could
you talk a little bit in terms of your existing channel, how
that's going to be impacted? I understand there are two
different markets that you're basically bringing together, but
in terms of minimum nodes for your indirect channel or any
sort of impact there, or what's the opportunity, said another
way, with your existing channels ... bring in McAfee.com?
NETWORK ASSOCIATES
MODERATOR: KELLY BLOUGH
MARCH 18, 2002/7:30 A.M. CST
PAGE 15
G. Samenuk Our existing channels who are very, very strong for Network
Associates, we believe, will have potentially an opportunity
not only to sell in their retail chains boxes, but what if
they could participate and let the customer choose? You can do
a box of McAfee or you can do an online service of McAfee. You
decide Mr. or Miss Customer, and you have the strength and
capability to have the protection in front of you immediately.
We believe that this thing opens up new possibilities and
allows synergies between the offerings, and again, gives the
customer a choice, which I don't believe any other vendor can
do today.
G. Munster Are the dynamics, your relationship with your existing
channel, going to change based on this beyond the fact that
they're going to give a different box for their customers to
check? Is there any sort of change in their commission
structure or anything on those terms?
G. Samenuk Not yet decided. That's something we'll be looking at with our
retailing partners in the next couple of weeks.
G. Munster Expect some tweaks to that channel?
NETWORK ASSOCIATES
MODERATOR: KELLY BLOUGH
MARCH 18, 2002/7:30 A.M. CST
PAGE 16
G. Samenuk I can't comment yet. We haven't done the work yet. We met with
Art Matan, our President of McAfee. Met with him last week and
listened to them on where they wanted the business to go going
forward and what their opportunities are. We learned a lot
last week. Art and the team met with over 30 or 40 of the
largest partners, and we believe we have an opportunity to
expand our business, and I believe that too.
G. Munster Just one final question; I'm not as familiar with McAfee.com,
but what's the profitability relative to your existing network
business?
S. Richards The guidance they have out there for next year is $80 million
to $90 million and $0.28 EPS.
G. Samenuk For 2002.
S. Richards Correct.
Coordinator Our next question comes from Matt Parzowskus of First Albany.
M. Parzowskus Just a follow on the competitive question. Who do you think
the real competition is going forward? Is it still the
traditional product vendors, or
NETWORK ASSOCIATES
MODERATOR: KELLY BLOUGH
MARCH 18, 2002/7:30 A.M. CST
PAGE 17
do all of a sudden you get into the new security services
vendors or other guys that are trying to provide services and
not just product?
G. Samenuk I think there's a couple of competitors out there in front of
us. Number one, the customers that have nothing; on a
worldwide basis that's still a huge amount of desktops that
don't have anti-virus protection installed. Number two;
certainly the traditional box vendors are our competitors.
Number three, the service partners who are reselling McAfee
ASAP to small and medium businesses certainly could offer that
service to the small and medium business customers on a home
usage basis. We can expand our very, very large contracts in
the Wal-Marts of the world and the Fords and the VA Hospitals
to their home users based on this service and bringing it all
together.
Srivats and the team did a great job of growing this business,
and now we plan to put a stake in the ground and say, "We're
going after this business in a large way," and give the
customer choices he or she didn't have before. That's what
we're about; listening to the customers and giving them
choices, and the choice is to choose McAfee.
Coordinator Our next question comes from Sterling Audie of J.P. Morgan.
NETWORK ASSOCIATES
MODERATOR: KELLY BLOUGH
MARCH 18, 2002/7:30 A.M. CST
PAGE 18
S. Audie For follow ups, in the combined entity, would McAfee.com still
operate as a separate business unit as you see Sniffer and
McAfee or would it fold into one or the other?
G. Samenuk We haven't made the final determination of where it will
operate and how it will operate. We'll be doing that in the
coming weeks working with Srivats Sampath and Art Matan and
Gene Hodges on figuring out, what's the; number one, best way
to go after the customer base? Number two; what are the best
ways to grow the revenue? Number three, what's the most
profitable way, so that going forward we deliver on the
promise of revenue growth and profit growth at Network
Associates? Those will be the three criteria. One, customers;
number two, on the revenue growth, what's the best way; and
number three, let Steve and the great team of finance
professionals decide on how we could make this the most
profitable entity going forward.
S. Audie To that point, Steve, was Network Associates still providing
some of the accounting, tax, and legal services to McAfee.com?
S. Richards Yes.
NETWORK ASSOCIATES
MODERATOR: KELLY BLOUGH
MARCH 18, 2002/7:30 A.M. CST
PAGE 19
S. Audie Thanks, guys.
Coordinator At this time, I would like to turn the conference back over to
our speakers for any closing remarks.
G. Samenuk Certainly, this is a very good day for McAfee.com and Network
Associates. We believe one large, strong company going forward
will best serve the customers on a worldwide basis. I keep
highlighting the worldwide because we believe there's
tremendous growth not only in the US, but especially outside
the United States for our McAfee and McAfee.com consumers and
small and medium businesses. As we go forward and in the April
call, we'll report to you on our progress on how this deal's
going, but we're very excited about it as you can tell. We
hope that this will drive great results for Network Associates
going forward. Thank you all very much.
Additional Information
In connection with the exchange offer, Network Associates, Inc. expects to
file an exchange offer prospectus and a registration statement on Form S-4 with
the Securities and Exchange Commission. INVESTORS AND STOCKHOLDERS ARE ADVISED
TO READ THESE AND ALL RELATED DOCUMENTS, WHEN AVAILABLE, BECAUSE THEY WILL
CONTAIN IMPORTANT INFORMATION RELATING TO THE EXCHANGE OFFER. Investors and
stockholders may obtain a free copy of the exchange offer prospectus, the
registration statement and related documents, when available, from the
Securities and Exchange Commission's web site at http://www.sec.gov. Free copies
of these documents may also be obtained from Parent, when available, by
directing a request to the information agent, D.F. King & Co., Inc., 77 Water
Street, New York, NY 10005, 1-888-414-5566.