FireEye Stock Tanks on Plan to Divest Core Business

Cybersecurity specialist FireEye (NASDAQ: FEYE) announced on Wednesday evening that it will sell its FireEye Products business, including the FireEye brand name, to a consortium of investors led by Symphony Technology Group (STG) for $1.2 billion in cash.

The company attests that the deal will allow it to focus on its Mandiant Solutions segment, which is growing much faster.

Investors weren’t too happy about the news, which sent shares down by 16% as of 1:15 p.m. EDT on Thursday.

Divesting the core business

STG has agreed to acquire the products business, which includes email, endpoint, and cloud security offerings for $1.2 billion. That price tag is lower than what some analysts would have expected, particularly considering FireEye still needs to execute with the Mandiant subscription business. STG had previously acquired McAfee’s enterprise business in March for $4 billion as it expands its cybersecurity portfolio.

“We believe this separation will unlock our high-growth Mandiant Solutions business and allow both organizations to better serve customers,” FireEye CEO Kevin Mandia said in a statement. “After closing, we will be able to concentrate exclusively on scaling our intelligence and frontline expertise through the Mandiant Advantage platform, while the FireEye Products business will be able to prioritize investment on its cloud-first security product portfolio.”

FireEye believes that divesting the products business will allow management to focus on innovating with its Mandiant Advantage platform, a software-as-a-service (SaaS) offering that allows enterprise organizations to receive threat intelligence and validate security controls, among other features. The company wants Mandiant to become a vendor-agnostic provider.

After the deal closes (which is expected to occur by the end of the fourth quarter), FireEye and Mandiant will maintain the longstanding partnership that brought the two companies together in the first place. The companies will craft a set of agreements for market cooperation, strategic collaboration, and transition services that will offer benefits to mutual customers.

A failed merger?

The deal is also somewhat ironic, as FireEye had acquired Mandiant back in 2014 before naming Mandia CEO in 2016. At the time, FireEye hoped that the combination of two complementary businesses would create a powerhouse in threat protection. 

After the divestiture is complete, Mandia will arguably be back in a similar position to what he was in prior to FireEye’s initial acquisition of Mandiant, which was a cash-and-stock deal valued at around $1 billion. By separating the businesses, FireEye is implicitly acknowledging that the initial thesis for merging may not have played out as hoped.

How the remaining company will use the cash

FireEye said the deal will allow it to invest in future growth, expanding the platform and raising market awareness while also pushing into new international markets. Additionally, the company’s board of directors has authorized a new share repurchase program of up to $500 million.

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Evan Niu, CFA has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Millennial Money is part of The Motley Fool network. Millennial Money has a disclosure policy.

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