Point-of-sale terminal maker VeriFone Systems Inc. says it will continue its attempts 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 Hypercom’s $6.35 closing price Tuesday.
VeriFone’s Oct. 7 pledge came a day after Hypercom dropped a lawsuit against the San Jose, Calif.-based company that became public on Oct. 6..
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 culminated 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 that Hypercom’s board rejected. The 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.
In Good Faith
Hypercom disclosed last week that the two companies signed a nondisclosure agreement on June 25, 2009, and have held discussion about an acquisition since May 6, 2010.
VeriFone’s Sept. 27 letter failed to disclose that VeriFone “was provided with valuable, nonpublic information on Hypercom’s expected performance,” among other misstatements, Hypercom says.
“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 ISO&Agent Weekly. “They are a seller … at the right price.” Sutton suggests that price is between $7 and $8 per share.
VeriFone wants Hypercom, Sutton notes. “The obvious question is, how much?”
Next Move Unclear
In a press release, Hypercom said 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 [its] expectations for [its] business plan,” analyst Robert Dodd of Morgan Keegan & Co. tells ISO&Agent Weekly. “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 lawsuit against VeriFone to correct that imbalance, Dodd says. He doubts Hypercom’s board of directors will talk with VeriFone before 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.
VeriFone apparently tried to buy Hypercom on the cheap, “with that superior information in hand,” Sutton says.
Analyst Gil Luria of 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 [it is] genuinely trying to get the best offer [it] can, and not trying to avoid a deal,” Luria tells ISO&Agent Weekly. But this likely also means that Hypercom had a chance to get a better offer and was not successful, leaving VeriFone with some leverage “to keep the offer low,” he says.
