Shares of FireEye (FEYE) are under pressure on Thursday after the cybersecurity company said it was selling its products business, including the FireEye name, to a consortium led by Symphony Technology Group. The transaction will split Mandiant Solutions, its cyber forensics unit, from the company's cloud security, network, and email products. Commenting on the news, Morgan Stanley analyst Hamza Fodderwala said that while the break-up makes sense, the upside for the stock following the deal is "less clear." Voicing a similar opinion, Baird analyst Jonathan Ruykhaver told investors that he long believed that FireEye could unlock value by splitting off the legacy business, but sees the move as reducing near-term visibility into the financial models and adding execution risk.

$1.2B SALE: FireEye announced it has entered into a definitive agreement to sell the FireEye Products business, including the FireEye name, to a consortium led by Symphony Technology Group in an all-cash transaction for $1.2B, before taxes and transaction-related expenses. The transaction is expected to close by the end of the fourth quarter of 2021, subject to customary regulatory approvals and closing conditions, and will separate FireEye's network, email, endpoint, and cloud security products, along with the related security management and orchestration platform, from Mandiant's controls-agnostic software and services, enabling both organizations to accelerate growth investments, pursue new go-to-market pathways, and focus innovation on their respective solutions. The FireEye Products business and Mandiant Solutions will continue to operate as a single entity until the transaction closes, allowing management and STG to develop a successful transition of the FireEye Products business to a standalone entity within the STG portfolio.

“We believe this separation will unlock our high-growth Mandiant Solutions business and allow both organizations to better serve customers. 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. STG’s focus on fueling innovative market leaders in software and cybersecurity makes them an ideal partner for FireEye Products. We look forward to our relationship and collaboration on threat intelligence and expertise,” said FireEye Chief Executive Officer Kevin Mandia. 

FireEye also announced that its Board of Directors has approved a share repurchase program for up to $500M of outstanding FireEye common stock. Repurchases may be made at management's discretion from time to time on the open market, through privately negotiated transactions, and through Rule 10b5-1 plans. 

UPSIDE 'LESS CLEAR': Commenting on FireEye's deal, Morgan Stanley analyst Hamza Fodderwala said the sale of the "stagnant" products business makes sense as it allows the company to focus on a higher-growth franchise in Mandiant. However, including about $1.1B of after-tax cash proceeds from the pending sale, Fodderwala estimates a sum-of-the-parts value modestly above $20 per share, or slightly below current trading levels, making the upside for the stock following the deal "less clear." Fodderwala has an Equal Weight rating and $19 price target on FireEye shares.

In a research note to investors following the news, Baird analyst Jonathan Ruykhaver said he long believed that FireEye could unlock value by splitting off the legacy business. However, the company is divesting more than he expected. The analyst sees it as a step in the right direction but believes the transaction meaningfully reduces near-term visibility into the financial models and adds execution risk. Ruykhaver maintained his Outperform rating and $24 price target on FireEye shares.

Noting that he has for many years ascribed more value to the Mandiant consulting and strategic services business, Mizuho analyst Gregg Moskowitz told investors that he believes this transaction should enable FireEye to have a singular focus on Mandiant going forward, with the potential to unlock additional growth opportunities. Nonetheless, the realized price for the product portfolio was less than he would have expected, and FireEye still has much to prove with regard to demonstrating significant uptake for its Mandiant Advantage subscription offerings. Moskowitz reiterated a Neutral rating and a price target of $23 on FireEye shares.

Also keeping a Hold rating on FireEye, Truist analyst Joel Fishbein Jr. said he views the transaction as positive as it allows the company to focus on the higher growth Mandiant Solutions business, in addition to receiving a significant infusion of cash for share repurchase and investment purposes. Despite the sale, he feels that the Mandiant Services business is capacity constrained and it remains to be seen whether it can grow over 20% long-term.

PRICE ACTION: In Thursday morning trading, shares of FireEye have dropped 14% to $19.39.