Network Associates, Inc. - formerly McAfee Associates - yesterday announced an agreement to acquire Pretty Good Privacy, Inc. (PGP) for $35 million in cash, bringing to seven the number of mergers and acquisitions it has made in the past 18 months.
Network Associates will combine PGP's desktop encryption technology and policy management tools with its own intrusion and virus detection software. This will build a new product suite that will meet customers' security needs at the enterprise level, said Bill Larson, chairman and CEO of Network Associates, in a teleconference announcing the acquisition.
The first elements of the new suite, dubbed the Total Network Security Suite, will be rolled out in the first quarter of next year, Larson said.
Seven weeks ago, McAfee announced it was merging with network management and security tools maker Network General Corp. in a transaction worth $1.3 billion.
PGP began life as freeware developed by company founder Phil Zimmerman, who posted the algorithm on various Internet sites around the world. Fearing the encryption technology could pose a threat to the U.S. national security if made available overseas, the U.S. Department of Commerce filed charges against Zimmerman.
The charges have since been dropped, and PGP this year released a suite of security applications for desktop and server encryption as well as user authentication. The products have proved slow to ship, and Larson acknowledged that PGP's revenues for its most recent financial quarter were minimal.
"That's CFO babble for zero; they have no revenue or prospects," said Ira Machefsky, vice president of Giga Information Group, Inc. in Santa Clara, Calif.
Machefsky said Network Associates acquired PGP for its valued engineers, not its products. If Network Associates is to be viewed as a serious player in the enterprise market for network security solutions, "then it needs good encryption technology engineers, which aren't easy to find," he said.
PGP's products are based on Open PGP, PGP's standard for e-mail encryption and digital signatures. Open PGP has been losing ground to an alternative standard, Secure Multi-purpose Internet Mail Extensions, which was developed by a group led by PGP competitor RSA Data Security, Inc. and has garnered support from Microsoft Corp., Lotus Development Corp., Netscape Communications Corp. and others, Machefsky said.
Before the news of the acquisition broke, Larson made a courtesy call to Chuck Stuckey, CEO of Secure Dynamics Technologies, Inc., the parent company of RSA Data Security, to inform him of Network Associates' intended acquisition. "He was very supportive of this move, and there's a feeling that there is room for both of us in this industry," Larson said.
Network Associates does not compete with RSA because "they make algorithms and we sell end solutions," Larson said. However, the company said it will pursue the progress PGP has made with the Internet Engineering Task Force to establish Open PGP as a standard.
Network Associates' new Total Network Security Division will be headed by Phil Dunkelberger, former CEO of PGP. Zimmerman will be made a "fellow" of Network Associates, Larson said.
The transaction, expected to close Dec. 15, is subject to PGP stockholder approval and other customary closing conditions. Network Associates expects to incur a significant charge to earnings for the Dec. 31 quarter as a result of the acquisition.
