Intel to Sell Majority Stake in Security Business to TPG

As widely anticipated, Intel Corporation (INTC – Free Report) is divesting a majority stake in its security division to alternative asset fund manager TPG. Per the definitive agreement recently signed by both the parties, a new jointly-owned company will be formed in which TPG will have a 51% stake.

The deal valued at $4.2 billion includes an equity value of approximately $2.2 billion for the security division in addition to net debt of approximately $2 billion. Moreover, TPG will infuse $1.1 billion in the standalone business, which will be renamed McAfee following the close of the transaction.

McAfee: A Failed Acquisition

Formerly known as McAfee, Intel had acquired the antivirus software maker back in 2010 with a view to secure its chips and improve their threat detection power. The unit was rebranded as Intel Security Group in 2014.

However, the division has failed to live up to Intel’s expectations. The original plan to embed McAfee’s cyber security technology in its chips remains incomplete. Moreover, the security space has become increasingly competitive with growing dominance of software makers like FireEye (FEYE – Free Report) .

Intel’s increasing focus into areas with better growth prospects, such as the data center, memory and Internet of Things (IoT) businesses makes the security business a strategic misfit. We believe the majority stake sale will free up resources for Intel, which it will invest on these fast growing businesses.

The deal is expected to close in the second quarter of 2017.

Growth prospects Are Bright

Intel’s data center business and cloud have been registering significant growth. The company’s bolt-on acquisition strategy is driving growth. The recent acquisitions of artificial intelligence (AI) startups Movidius and Nervana Systems will help Intel in strengthening its footprint in data center, machine learning, deep learning and IoT businesses.

Moreover, Intel’s recently launched 7th generation CPU –14nm Kaby Lakechip holds promise. Apart from improved graphics performance, better CPU performance and longer battery life Kaby’s biggest feature is improved support for 4K, which is likely to be a big positive in the long haul.

Zacks Rank & Key Picks

Intel has a Zacks Rank #3 (Hold).

Better-ranked stocks are NVIDIA (NVDA – Free Report) and Texas Instrument (TXN – Free Report) . While NVIDIA sports a Zacks Rank #1 (Strong Buy), Texas Instrument carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Interested in IPOs? Check out the special edition of Zacks Friday Finish Line below, where Editor Maddy Johnson and Content Writer Ryan McQueeney interview Kathleen Smith of Renaissance Capital about the IPO market in 2016


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