Shares of FireEye Inc. FEYE rallied after Bloomberg published a report that the cyber security company has rejected multiple takeover offers this year. The stock climbed 7.6% before settling at 4% at the end yesterday’s trade.
Citing anonymous sources, Bloomberg noted that the company has rebuffed at least two offers, including one bid from Symantec Corporation SYMC, after which it inked a deal to acquire Blue Coat Systems Inc. for $4.65 billion. According to the reports, FireEye rejected these offers due to lower-than-expected offer prices.
What Makes FireEye a Suitable Takeover Target?
At yesterday’s closing price of $16.05, FireEye’s shares were approximately 84% down from the all-time high of $97.35 attained on Mar 5, 2014. Thereafter, the company’s market capitalization has declined drastically and is now standing at $2.67 billion on the basis of yesterday’s closing price.
Moreover, the stock is currently trading near its 52-week low of $11.35 attained in Feb 2016. It appears that the company’s low valuation has attracted bidders looking for exposure to security.
However, as per Bloomberg’s report, both bidders failed to impress FireEye with their offers. FireEye was looking for offers of $30 a share or more and both parties reportedly made offers far lower than its expectations, which ultimately led to their rejection. FireEye had hired Morgan Stanley to seek suitable bidders.
FIREEYE INC Price
FIREEYE INC Price | FIREEYE INC Quote
As per the report, talks with Symantec ended in February, while the anonymous second bidder suspended negotiations in March.
This is not the first time that FireEye has become a takeover target. Previously, rumors of a possible takeover of the struggling cybersecurity company by Cisco Systems Inc. (CSCO) had caught investor attention.
Challenges Faced by the Company
Of late, FireEye has been losing business to its rivals. Although, it has been witnessing year-over-year revenue growth every quarter, the top line has missed the Zacks Consensus Estimate in each of the last three quarters. On the other hand, its rivals such as Fortinet Inc. FTNT and Palo Alto Networks Inc. PANW reported revenues that were not only higher than the year-ago figure, but were also above the Zacks Consensus Estimate.
Moreover, during the first-quarter 2016 earnings call, FireEye lowered its revenue guidance as some deals were pushed out to future quarters.
The company’s bottom-line results failed to please as well. Since Sep 2013 when it was listed on the NASDAQ Stock Exchange, the company has not been able to report profits in even a single quarter.
Nonetheless, FireEye’s management has been trying hard to bring a turnaround. During the first quarter, it acquired iSIGHT Partners to strengthen its current product line-up and offer an intelligence-led security model for enterprises of any size that other security providers will find difficult to match.
Furthermore, the company has launched FireEye Essentials, a lower-cost and simpler version of the FireEye Global Threat Management platform. It is targeting smaller, mid-market companies with the new offering.
However, negative operating cash flows remain a major headwind for FireEye, which may hinder the execution of its growth plans.
Given the losses incurred by the company, FireEye’s management is looking for all options to maximize value.
However, considering its recent performance and current valuations, it seems ambitious to expect potential buyers to make offers of $30 or more, which represents an 87% premium to Wednesday’s closing price.
Therefore, it is better to wait and see what the management has planned for the future.
Currently, FireEye carries a Zacks Rank #3 (Hold).
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