McAfee to Buy Network General for $1.3 Billion

McAfee Associates agreed Monday to buy Network General Inc. for $1.3 billion in stock, creating one of the largest makers of software used to manage and protect computer networks.

The deal is expected to help McAfee, the leading maker of anti-virus software, expand its presence in the growing area of computer network security and trouble-shooting.

Analysts said that by combining their products, the two companies--which will merge into a new entity called Network Associates--have a better shot at landing corporate sales.

“It’s a natural merger,” said Carolyn DiCenzo, an analyst at Dataquest in San Jose. “This offers one-stop shopping, a complete solution in what will become a very competitive market.”

The deal did surprise analysts, however, because both companies are already among the largest players in a fragmented market.

According to terms of the agreement, McAfee will offer 0.4167 share for each share of Network General stock. Both companies’ directors have approved the transaction, which is expected to close within 90 days.

McAfee shares rose $2 to close at $66.38; Network General shares gained $2.50 to close at $23.38. Both trade on Nasdaq. The deal was announced after the market closed.

McAfee, based in Santa Clara, reported earnings of $39 million, or 73 cents a share, on sales of $181 million last year. Network General posted a profit of $25.1 million, or 55 cents a share, on sales of $241 million.

Bill Larson, chief executive of McAfee, will become chairman and chief executive of the new company. Leslie Denend, chief executive of Network General, will serve as president.

Combined, the two companies have 1,700 employees. Larson said that although both companies are growing rapidly and plan to retain most employees, “there is some duplication, and cost synergies are possible.”

Network General, based in Menlo Park, is best known as the maker of a software product called Sniffer, which enables companies to manage the traffic on their networks, spotting breakdowns and routing data past trouble spots.

But the company also has recently expanded into network security, introducing intrusion detection software that spots intruders on a network.

That product and other technologies, Larson said, complement McAfee’s growing array of security software, which has moved beyond virus protection into data encryption, firewall protection and help- desk management.

Jim Balderston, an analyst at Zona Research, said demand for security products is growing.

“Our surveys show that companies are going to continue spending big on security because their networks are getting more sophisticated and more critical to the business,” Balderston said.

Other companies, including Computer Associates and Check Point Software Technology, offer either broad security products or have commanding market share in specific categories.

But Larson said Network Associates plans to outmaneuver those potential rivals by making its products particularly compatible with Windows NT, the increasingly profitable network operating system made by Microsoft Corp.

By joining forces, McAfee and Network General also hope to convince their separate customers to use the full range of products offered by the new company.

Both companies supply software to some of the nation’s largest companies. McAfee, for instance, supplies anti-virus software to companies including Ford Motor Co. and AT&T.;