McAfee axes Weiss in options scandal

President fired, CEO stands down

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By  Published  October 20, 2006

McAfee’s shock decision this month to fire its president Kevin Weiss, coupled with the departure of CEO and chairman George Samenuk, has led to mounting speculation that the security giant could end up being bought by another firm.

Weiss was fired and Samenuk resigned following an internal investigation into McAfee’s accounting practices, triggered by concerns over the backdating of stock option grants.

McAfee is just one of a number of vendors to face investigation over its accounting practices in recent months.

Industry analysts have now pinpointed McAfee as ripe for takeover.

“With the executive departures at McAfee, we belie- ve the company could also become a potential M&A [mergers and acquisitions] candidate,” wrote UBS Securities analysts Heather Bellini, Abhey Lamba and Jon Stuart in a research note this month.

The vendor’s situation has been compared to that of recent HP acquisition Mercury Interactive, whose CEO, CFO and general counsel resigned following an inquiry into options backdating at the company prior to its purchase.

The likelihood McAfee will be sold was given further weight when, during a conference call following the executive departures, the vendor told analysts it was open to all ‘strategic options’, a phrase interpreted as meaning it was considering a takeover.

Robert Breza, RBC Capital Markets analyst, stated in a research note that this suggested McAfee could be open to offers.

The executive departures are just the latest in a string of management changes at McAfee that have seen Gene Hodgesresign as president to join rival Websense in January and Vincent Gullotto, the head of its Antivirus and Vulnerability Emergency Response Team (AVERT) leave for Microsoft.

The vendor has been quick to appoint Dale Fuller as CEO and president, and Charles Robel has been named company chairman, but analysts have also voiced concerns over the company’s long-term prospects.

“The new McAfee chairman and CEO have both been with McAfee for less than one year and should make existing shareholders nervous as the company will likely see a brain drain as many talented people are likely to leave the company after year-end bonuses are paid,” Breza wrote.

McAfee announced the management cull on October 11 and said it would now have to rest- ate its earnings over a ten-year period, which is expected to cost the firm between US$100million and US$150million.

Samenuk, who had led McAfee for six years, said the departures were “in the best interests of the company”.

“I regret that some of the stock option problems identified by the special committee occurred on my watch,” he said in a statement.

Fuller joined the McAfee board in January. He had previously served more than six years as CEO and president of software developer Borland Software.

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