VeriFone To Seek 'Alternative Buyer' For Hypercom's U.S. Business As DOJ Blocks Deal

VeriFone Systems Inc. and Hypercom Corp. are considering the sale of Hypercom's U.S. point-of-sale terminal business to an "alternative buyer" in response to an antitrust lawsuit the U.S. Justice Department filed against the companies May 12.

The Justice Department filed the suit to block VeriFone's proposed $485 million acquisition of Hypercom, which the agency said would "substantially lessen" competition for payment terminals in the U.S. (see story). 

Antitrust issues have surrounded the deal since it was announced in November (see story). In an effort to allay the concerns, Hypercom said in April that it would sell its U.S. business to a competitor, Ingenico SA of France, for $54 million (see story).

But that deal would not resolve antitrust concerns because it would not "create a new, independent, long-term competitor" in the terminal market, the Justice Department said in a May 12 press release about its lawsuit.

Also, agreements between Ingenico and VeriFone would make it easier for the two companies to coordinate pricing for point of sale terminals, the agency said.

"The combination of VeriFone and Hypercom would likely lead to retailers paying higher prices for POS terminals," Christine Varney, assistant attorney general for the Justice Department's antitrust division, said in the agency's release.

The lawsuit opens the door for other players to gain a toehold in the terminal business.

Vivotech Inc., a Santa Clara, Calif., company that specializes in mobile payment technology, approached VeriFone in March about buying Hypercom’s U.S. payments business (see story). The company said May 13 it had “renewed” its approach to buying the assets, which would allow it to expand adoption of mobile technology.

“We totally understand the DOJ’s concerns because the cozy deal would essentially create a collaborative duopoly in this competitive market inhibiting choice and innovation, just as the NFC mobile-commerce market is on the cusp of becoming reality,” Michael Mullagh, Vivotech CEO, said in a news release.  “We believe our renewed approach to VeriFone, if executed, will be good for consumers and merchants and, perhaps more importantly, is in the best interest and benefit of VeriFone and Hypercom shareholders.”

Private equity players have also expressed interest in the business, Darrin Peller, an analyst with Barclays Capital who follows the terminal makers, said in a May 12 research note.

The Justice Department's lawsuit "should not prevent the deal from closing overall," Peller wrote.

VeriFone and Hypercom said in a joint statement on May 12 that they are working with the agency to "better understand its concerns and assess various options" for the sale of Hypercom's U.S. business, "including the possibility of a divestiture to an alternative buyer."