Despite an analyst downgrade, shares of FireEye (NASDAQ:FEYE) were surging strongly in afternoon trading on the Nasdaq Friday. As of 2 p.m. EST, the stock was up 7.6% — mainly on news released Thursday that a Blackstone (NYSE:BX) fund had made a $400 million strategic investment in the cybersecurity company.
At 4:01 p.m. EST Thursday, just after the close of trading, FireEye announced that Blackstone Tactical Opportunities is partnering with cybersecurity-focused investment firm ClearSky to buy $400 million worth of 4.5% Series A Convertible FireEye preferred stock. Those shares will be convertible into FireEye common stock at a conversion price of $18 per share (about 17% higher than the stock trades today).
This provision suggests that Blackstone anticipates strong growth in the share price in the near future. (If it’s wrong, though, it will at least receive 4.5% interest on its investment, which is a whole lot more than it would get from sticking the money in a savings account).
FireEye isn’t wasting any time putting this cash infusion to use. In a simultaneous announcement, the company said it will be buying cybersecurity investigation automation company Respond Software for $186 million in cash and stock.
The market seems to like both pieces of news. Investors bid the shares up immediately in after-hours trading, and the stock has largely held onto those gains. Regardless, British financial giant Barclays cut its rating on FireEye stock to underweight Friday morning, warning that the company will need to make even more such acquisitions, and probably pay premium prices to secure them, as competition heats up in the cybersecurity sector.
In apparent disagreement with Blackstone’s setting an $18 price for convertibility, Barclays has a $17 price target on FireEye stock.