Point-of-sale terminal maker VeriFone Systems Inc. says it will continue to try to buy Hypercom Corp., its Scottsdale, Ariz.-based rival, even though VeriFone’s $5.25 per share offer is more than a $1 shy of the $6.40 price of Hypercom shares Friday morning.
VeriFone’s pledge comes a day after Hypercom dropped a lawsuit against San Jose, Calif.-based VeriFone that was announced earlier in the day (see story).
In the now defunct lawsuit, Hypercom wanted to prevent VeriFone from moving ahead with its “hostile” offer. A VeriFone spokesperson was not available for comment. Hypercom also did not respond to questions.
The dispute emanates from the Sept. 27 public release of a VeriFone letter to Hypercom’s board of directors that included a cash offer of $5.25 per share (see story) that Hypercom rejected. Hypercom’s board also rejected a Sept. 24 offer of $6 per share in a VeriFone stock offer.
Though Hypercom, at $406.9 million in 2009 revenue, is half the size of VeriFone with $844.7 million in revenue last year, VeriFone covets Hypercom’s market share in Europe, where it strongly competes against Ingenico S.A., a France-based POS terminal maker. Ingenico’s 2009 revenue was $976.2 million.
Hypercom disclosed yesterday that the two companies signed a nondisclosure agreement on June 25, 2009, and have held discussions with VeriFone about an acquisition since May 6, 2010.
Hypercom says VeriFone’s Sept. 27 letter failed to disclose that VeriFone “was provided with valuable, non-public information on Hypercom’s expected performance,” among other misstatements.
“While Hypercom is an increasingly strong, independent competitor in the global market, at VeriFone’s initiation, the company has engaged in numerous detailed, good faith discussions with VeriFone in the belief that a combination at the right price could benefit its stockholders and therefore would warrant the board’s full and concerted consideration,” Hypercom said in an Oct. 7 statement .
VeriFone’s continued interest in Hypercom is not a shock, analysts say.
“There should be little doubt that the Hypercom board is seeking a sale,” George Sutton, senior research analyst at Minneapolis-based Craig-Hallum Capital Group LLC, tells PaymentsSource. “They are a seller … at the right price.” Sutton suggests that price is between $7 and $8 a share.
VeriFone wants Hypercom, Sutton notes. “The obvious question is how much.”
In a press release, Hypercom says it wants VeriFone to defer buyout discussions until Nov. 2, when Hypercom releases its third-quarter results.
“Hypercom has been telling VeriFone very detailed information about their expectations for their business plan,” analyst Robert Dodd with Morgan Keegan & Co. tells PaymentsSource. “All of that is highly confidential. To a large degree VeriFone has an unfair advantage versus the marketplace in evaluating Hypercom and that normally is problematic.”
Hypercom filed the suit to correct that imbalance, Dodd says. He doubts that Hypercom’s board of directors will talk with VeriFone prior to Nov. 2, leaving VeriFone with two apparent options: increase the bid or wait.
“It’s unclear what VeriFone is going to do at this point,” Dodd says.
“It does appear [that VeriFone] tried to buy [Hypercom] on the cheap, with that superior information in hand,” Sutton says.
Analyst Gil Luria at Los Angeles-based Wedbush Securities says VeriFone has made multiple private offers to Hypercom, with one in June noted as “substantially” higher than the $5.25 per share hostile offer.
“Hypercom is trying to tell shareholders that they are genuinely trying to get the best offer they can, and not trying to avoid a deal,” Luria tells PaymentsSource. But, this likely also means that Hypercom had a chance to get a better offer and was not successful, he says, leaving VeriFone with some leverage “to keep the offer low.”
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