Intel and McAfee: is it too expensive?

Folowing Emmanuel's post on the acquisition of McAfee by intel, I would like to add a few comments concerning the price tag. Many commentators have noted that 7.68 billion dollars is a lot of money and suggested that the price is too high. Three observations :

First, while 7.68 billion is a lot of money, Intel in fact has a lot of money and is very experienced with huge CAPEX. One might also observe that cash earns virtually nothing in these days of ultra-low interest rates.

Second, McAfee was trading before the announcement at a P/E raio of around 11, following some difficult quarters. While the deal values McAfee at around 18 to 19 times projected earnings, many software deals come with a much higher implicit P/E. On this basis, the decision starts to look more reasonable.

Third, if Intel is right about the changing role of security - and that's a big "if" - the acquisition could pay off longer term quite well.

This may well be the sort of situation where, as one of Jane Austin's heroines famously said, you can't know if the decision was good or bad (or somewhere in between) until you learn how it all works out.