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Hypercom Corp.’s board of directors on Sept. 30 rejected VeriFone Systems Inc.’s unsolicited $284 million bid to buy the Scottsdale, Ariz.-based point-of-sale terminal maker.

The board made the decision late yesterday following VeriFone’s disclosure of the offer of $5.25 per Hypercom share, Hypercom said in a statement.

“Hypercom’s board thoroughly reviewed VeriFone’s unsolicited proposal with the assistance of its independent financial and legal advisors and concluded that the proposal significantly undervalues the company and its future prospects and is not in the best interests of stockholders,” Hypercom said in a statement. “Hypercom believes that VeriFone’s proposal is opportunistic and intended to disrupt its business, which has successfully taken market share from VeriFone in several markets.”

San Jose, Calif.-based VeriFone said the price it offered was a 52% premium over Hypercom’s average share price for the 30 trading days leading up to its offer.

VeriFone last week made a stock offer of $6 per share, which Hypercom’s board ignored. Subsequently, VeriFone made the cash offer public to force a reaction. The implications of such a deal for the ISO community is unknown.

Not Enough?

Any Hypercom suitor should be willing to pay at least $6.25 per share, George Sutton, senior research analyst at Minneapolis-based Craig-Hallum Capital Group LLC, noted in a research note. The price should be higher than what VeriFone offered because Hypercom strengthened itself with the completion of its 2008 purchase of the e-Transaction unit of Thales SA, Sutton said.

“With those combined businesses now fully consolidated and the business setting up for a strong second half in 2010, we find it quite unlikely that a deal would occur anywhere below the $6.25 price,” he said.

Other analysts say Hypercom shareholders will want more if they are to consider an offer to be a serious one.

“Given the progress made by the company over the last four quarter, Hypercom shareholders will not settle for an offer less than $6 a share in cash and are less likely to accept a stock offer,” notes Gil Luria, analysts at Los Angeles-based Wedbush Securities.

If VeriFone and Hypercom were to strike a deal, the combination would link the two main terminal makers in the United States. However, analysts were skeptical that Hypercom would acquiesce.

“I would, right now, be somewhat skeptical that it would get passed,” says Robert J. Dodd, an analyst at Morgan Keegan & Co. Inc. He notes that French terminal maker Ingenico SA offered to buy Hypercom in 2008 at $6.25 per share, but Hypercom rejected the offer, saying then that it undervalued the company. Ingenico later withdrew its bid after Hypercom purchased Thales’ e-Transactions unit.

Hypercom would help VeriFone bolster its presence in Western Europe, though there would be hurdles, Dodd said

“This is not a zero-sum game, when you buy a competitor,” he said. “Where you overlap you lose market share. There generally has to be a pretty compelling case for some kind of synergy, on cost or something like that, or product set.”

But combining the companies would create “significant operating synergies that will enhance product development and sales expenses in many markets,” especially Europe, Douglas G. Bergeron, VeriFone’s chief executive, said during a Sept. 29 conference call to discuss its offer. “We see this as a great opportunity to expand our footprint in continental Europe.”

And VeriFone is prepared to divest Hypercom’s U.S. business should an acquisition happen to address potential regulatory concerns and to expedite the deal, Bergeron said.

Hypercom’s 2009 revenue from the Americas was approximately $90 million, Sutton says. Hypercom does not disclose country-specific performance data.

VeriFone’s interest in Hypercom also may provoke renewed interest from Ingenico, Wedbush’s Luria speculates.

“Although Ingenico’s own unsolicited bid for $6.25 per share in 2008 was rejected by Hypercom’s board, we believe Ingenico has made other attempts to buy [Hypercom] as a last chance to gain a big foothold in the lucrative U.S. channel business,” he said.


With additional reporting by Sean Sposito.


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