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Network Associates Will Acquire CyberMedia

TIMES STAFF WRITER

CyberMedia Inc., which helped pioneer a class of software products that allow personal computers to fix themselves, agreed Tuesday to be purchased by larger rival Network Associates Inc. for $130 million in cash.

The deal will accelerate the introduction of the Santa Monica company’s products into the corporate market and add a much-needed degree of viability and credibility to the CyberMedia name, analysts said.

Santa Clara-based Network Associates, which makes enterprise computer network security software, will pay $9.50 for each share of CyberMedia’s outstanding stock. CyberMedia will become part of the McAfee Software Division, a new business unit dedicated to selling software for desktop computers. The deal is expected to close in 30 to 45 days.

News of the Network Associates offer pushed CyberMedia’s stock price up $1.66 to close at $9.22 on Nasdaq. Shares in Network Associates fell $1.06 to close at $48.88, also on Nasdaq.

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CyberMedia’s stock rose nearly 22% despite the release of a dismal second-quarter earnings report. The company’s revenue for the three months ending June 30 plunged 71% to $5.9 million, compared with $20.4 million in the second quarter last year. The company reported a net loss of $11.9 million, or 91 cents per share, compared with a net loss last year of 55 cents per share. CyberMedia was expected to lose 26 cents a share, according to analysts polled by First Call Corp.

CyberMedia Chairman and Chief Executive Kanwal Rekhi attributed the poor performance to costs associated with clearing excess inventory out of the retail channel and entering the corporate market.

But those troubles highlight the upside for CyberMedia in joining forces with Network Associates, which has a good reputation with corporate customers, said Tom Sweeny, a software services analyst with Dataquest Gartner Group in Lowell, Mass. CyberMedia’s products--including software that automatically fixes bugs and downloads upgrades directly from the Internet--are popular with consumers but have had a hard time gaining the respect of business users.

“We have very strong brands and very good products,” said CyberMedia’s Rekhi. “Now our technology is in much stronger hands where they can put marketing and financial muscle behind it. Our customers and our employees will do very well as a result, and our shareholders can cash out.”

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William Larson, Network Associates’ chief executive, said it was premature to estimate how many of CyberMedia’s 220 employees would lose their jobs. But Larson noted that Network Associates typically makes “very modest” cuts in areas such as research and development, customer support and sales. The bulk of CyberMedia’s work force will be merged with Network Associates’ 60 employees in Santa Monica.

CyberMedia has struggled all year. Its chief financial officer resigned in February and board member Rekhi took over as chairman to support co-founder Unni Warrier, who resigned as president and chief executive in March.

Rekhi said Tuesday that Network Associates and software utility maker Symantec Corp. of Cupertino each offered to buy CyberMedia in February, when the stock was trading in the $6 to $8 range. Rekhi declined because he thought he could rebuild the company and raise the stock price to near its high of $30.88 in November.

But things continued to worsen, so Rekhi was receptive when Network Associates returned with its $9.50-per-share offer this month. Rekhi said Network Associates had offered more for CyberMedia in February, but he wouldn’t say how much.

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