U.S. Antitrust Suit Punches Up Contactless Payments Market
WASHINGTON – The Department of Justice filed an antitrust suit last week to stop VeriFone from acquiring Hypercom because it would eliminate one of only three competitors in the manufacture of the ubiquitous point-of-sale payments terminals.
The new antitrust suit prompted ViVotech, the pioneer in contactless payment technology, to renew its bid to acquire Hypercom’s U.S. Assets, which would help it expand its presence in the growing market for Near Field Communication, or contactless, POS terminals. The market is about to explode, with some one million POS terminals around the country poised to be replaced with new technology, like contactless cards.
In its suit, the Justice Department said VeriFone’s plans to divest itself of the Hypercom assets by selling them to France’s Ingenico to facilitate antitrust clearance is not adequate because VeriFone would still control the Hypercom assets via a licensing agreement with Ingenico. The department said that the proposed deal would substantially reduce competition in the sale of POS terminals in the U.S., resulting in higher prices and reduced innovation, quality, product variety, and service.
VeriFone owns a 48% share of the U.S. POS market, Ingencio an 18% share and Hypercom a 26% share–or 92% of the market between the three of them, according to Justice. The proposed deal would result in VeriFone and Ingenico becoming a “cooperative duopoly” in full control of the sale of POS devices in the U.S., the suit asserts.
“The combination of VeriFone and Hypercom would likely lead to retailers paying higher prices for POS terminals,” said Christine Varney, Assistant Attorney General in charge of the Justice Department’s Antitrust Division. “The proposed divestiture does not resolve the significant competitive concerns posed by the merger, and in some ways exacerbates them.”
ViVotech said its purchase of the Hypercom assets would satisfy the government’s antitrust concerns. “We still see the acquisition of Hypercom’s U.S. assets as a strategic and transformative opportunity for our company to enhance next-generation NFC platforms, and accelerate the adoption of in-store mobile payment, loyalty, marketing and merchandising solutions in the U.S.,” said Mike Mullagh, CEO of ViVotech. “We are also the company that is in the best position to support and provide continuity to Hypercom’s customers and to become a strong, viable third competitor maintaining a highly competitive market.”
In November, VeriFone agreed to purchase Hypercom for $485 million. To satisfy antitrust concerns, the companies said in April that Hypercom's U.S. operations would be sold to Ingenico, the largest provider of POS terminals worldwide, for $54 million.
But the agreement between VeriFone, Hypercom, and Ingenico, according to the antitrust suit, is anything but a bona fide sale of a stand-alone Hypercom U.S. business. Rather, it is a complex licensing agreement with which Ingenico would essentially become a Hypercom franchisee of the combined VeriFone and Hypercom, with the exclusive right to sell Hypercom POS terminals in the U.S. for five years. The agreement is referred to as the Hypercom franchise agreement throughout the suit, which says the deal violates provisions of both the Sherman and Clayton antitrust acts. The so-called divestiture of Hypercom's U.S. business to Ingenico therefore exacerbates, rather than mitigates, the antitrust issues raised by the original transaction, says the suit.