Douglas Bergeron was focused in the fall of 2010 like a laser on a single goal–orchestrating his company's hostile acquisition of Hypercom Corp. Bergeron had already built VeriFone Systems Inc. into a force in point of sale terminals. Its card-reading devices graced countertops of retailers in dozens of countries.
Buying its rival Hypercom, however, would add a major European presence and help Bergeron cement VeriFone's position as the premier global intermediary between consumers and the likes of Visa, MasterCard, American Express and even Google.
Yes, the buyout was attractive. But there were hurdles. They included antitrust concerns, pushback from VeriFone's investors over the risks and cost and Hypercom's own litigious streak.
Bergeron's lawyers took one look at the deal and in unison told him the same thing: fuhgeddaboutit.
Bergeron didn't listen. He spent a year in intense negotiations, turned a $280 million hostile bid into a friendly one of $485 million and, ultimately, completed the takeover.
Now VeriFone claims it could add $350 million in revenue in fiscal 2012, precisely where Bergeron wants it. "We're right at the center of all innovation, buying companies bringing out new products and new services," he says. "If we were sitting around trying to sell 1990s terminals, we'd be in deep trouble. Instead, we're at ground zero" of the payments revolution.
Since his earliest days, Bergeron has defied the odds and refused to listen when told he can't do something. He's a native of Windsor, a town in Ontario across the Detroit River from the Motor City. When he was a child his father, George, who worked at an auto parts factory, was diagnosed with multiple sclerosis, which sent him on a trajectory in his thirties from a cane, to crutches, to a wheelchair. His mother, Eleanor, worked for Avon Products while George stayed home and raised Bergeron and his siblings. She tells the story of how Doug, then around 10, pushed to the front of a crowded mall parking lot to shake hands with Pierre Trudeau, at the time Canada's prime minister. "He proceeded to say how he was going to be prime minister one day," Eleanor recalls.
The first member of his family to go to college, Bergeron, who is 51, helped pay his way to a computer science degree at Toronto's York University playing accordion at wedding receptions and bar mitzvahs. After graduating, Bergeron went to work for Northern Telecom in Ottawa and won a company scholarship to study systems management at the University of Southern California. He then took a job with SunGard Data Systems Inc., rising to become chief executive of SunGard's brokerage systems group and president of SunGard Future Systems.
In 1999 he was hired as the turnaround chief of the troubled Toronto software company Geac Computer Corp. Ltd. During his tenure, Geac, which he said focused on Y2K software, never turned around.
"What failed to occur to me in my due diligence is asking, How much software is this company going to sell in July of 2000?" Bergeron recalls. "None."
Geac eventually turned around, but without Bergeron. He was fired after 16 months.
The same day he lost his job at Geac, Bergeron got a call from the private-equity billionaire Alec Gores. By the next Monday Bergeron was in Los Angeles, working as a group president with Gores Technology Group, now the Gores Group. (The Gores Group's purchase of the U.S. business of Hypercom allowed VeriFone to buy the remainder.)
It was while working for Gores that Bergeron came upon VeriFone. Founded in the 1980s, the company grew on the back of its Zon and Tranz lines of terminals, which helped merchants convert from paper-based transactions to electronic payments.
VeriFone, of San Jose, Calif., had been publicly held for seven years until Hewlett-Packard paid almost $1.3 billion in stock for it in 1997. A culture clash ensued, and HP's ambitions to use VeriFone as a springboard to dive into the electronic payments business flopped. In 2001, the savvy Gores bought VeriFone from HP for $50 million via $5 million of equity, $35 million of debt against receivables and a $10 million seller's note from HP.
Gores put Bergeron, who was then a partner in the private-equity firm, in charge because he was the only person in the shop with experience running a technology outfit of 1,400 people.
At the time, Bergeron put down $500,000 to buy 10% of VeriFone. He said he immediately cut the company's head count to 800 and set off to meet VeriFone's customers.
With VeriFone again solidly profitable, the Gores Group and Bergeron sold an 85% stake for about $160 million in June 2002 to GTCR Golder Rauner LLC, a Chicago private-equity firm, and Bergeron himself. Bergeron reinvested some of his profits in the Gores sale into the GTCR deal, and coupled with the new carried interest he received as being CEO, he effectively maintained his 10% stake. Three years later, VeriFone's owners took it public. Bergeron has since cut his stake ownership to 3% by selling about $200 million in stock. Today his stake in VeriFone is worth about $120 million, he says.
All was going well for VeriFone until shortly after Thanksgiving 2007. That's when, Bergeron says, he got a call from his chief financial officer, Barry Zwarenstein, informing him of a serious accounting error. In early December VeriFone said it was restating its earnings for the nine months through October.
On Dec. 3, 2007, VeriFone's stock dropped 46%. Its market value fell by $1.8 billion in a single day.
The Securities and Exchange Commission eventually accused Paul Periolat, the supply chain controller, of massaging the financials to create bogus profits. Periolat agreed to a $25,000 SEC settlement and was fired. Zwarenstein resigned.
Bergeron faced scrutiny, too. In a deposition obtained by American Banker (see related
Bergeron resigned as VeriFone's chairman but retained the chief executive title. VeriFone settled with the SEC. The episode was "a completely honest error," he insists. "We had grown fast and unlike today, in retrospect we didn't have all the checks and balances in the system."
Bergeron retains his appetite for high jinks. Earlier this year he claimed that Square Inc.'s point of sale devices contained security flaws and put customers at risk. To prove it, he had a VeriFone programmer develop an iPhone app and skim consumer information from a Square card reader. Analysts responded by accusing Bergeron of crossing the line between fierce competition and dirty tricks. "I was trying to be edgy," says an unapologetic Bergeron. "If that's viewed as prickly, I guess I'm 5 degrees off."
Outside the office, Bergeron is similarly competitive. He owns a stake in Richard Petty's Nascar team and made an unsuccessful bid to buy a piece of hockey's Nashville Predators. To celebrate a decade at VeriFone, Bergeron threw a party in October in his home in Atherton, Calif. He invited 250 guests, including his wife Sandra and five children from two marriages, turned the pool into a dance floor and hired Randy Owens of the country-rock band Alabama to perform.
Though VeriFone is entrenched with Ingenico SA as a duopoly in the payment terminal business, Bergeron retains the air of an up-and-comer. VeriFone is now focused on becoming a diversified payments company, pushing mobile payments and enabling retailers to manage online sales from branches. It installs terminals in taxis, where it accepts payments and runs ads and other content. "I fully expect that in 10 years this business will look completely different," Bergeron says. "We're certainly not sitting on a throne watching the world go by."
Sidebar:
VeriFone's Darkest Moment
Douglas Bergeron has been a hugely successful chief executive at VeriFone — but with plenty of rough patches along the way.
The biggest concerns a financial restatement for the first three quarters of fiscal 2007, which, when announced in December of that year, sent VeriFone's stock and market value tumbling.
"That was the darkest moment in VeriFone's history," Bergeron tells American Banker. "I'm searching for words to describe the combination of anger, disappointment and embarrassment."
Dark may only tell part of the story. By the looks of a deposition Bergeron voluntarily gave to the SEC, and which American Banker acquired, the episode put his VeriFone career in serious peril.
The 152-page document indicates that SEC attorneys confronted Bergeron with a cache of emails relating to his involvement in discussions about the company's financial reporting prior to the erroneous statements.
At the time, VeriFone expected to earn 36.5 cents a share for a period that was not specified in the transcript. In a separate and unrelated email, Bergeron told colleagues that if the company didn't hit a certain number, "the party would be over big time for us," according to messages cited in the deposition.
"Now, assuming Paul"–Paul Periolat, then the company's supply chain controller–"delivers, we're at 219 million, 47 percent, 51 million, but only 35.6 cents. … How did we lose three cents?" Bergeron wrote a colleague at the time. Responded the colleague: "Paul will not stop looking."
Said Bergeron in another email cited in the deposition: "We need to get to 36.5 cents, figure it out."
The recipient's response: "Can I speak with you?" Bergeron: "You should wait until I cool down, use the time to figure out how we get to 36.5 cents."
Bergeron insisted during his deposition that he was using brash language because he was frustrated by his accounting team's inability to conclusively pin down earnings or explain why the company's profits weren't meeting expectations.
"You're seeing some frustration in the … –from me–in what happens after the operating numbers come in and how do you get to EPS," he told the SEC. "My sense was this was their first quarter closing this complicated dual thing and they had a lot of errors in their calculation. I was doing what good CEOs do, maybe with a little more expletive, regrettable expletive than necessary. I'm pushing him to go on and, you know, recalculate, recalculate, make sure we get it right."
Ultimately, the SEC came to a settlement with VeriFone. Periolat agreed to a $25,000 SEC settlement and was fired. VeriFone's chief financial officer, Barry Zwarenstein, resigned. Bergeron relinquished the chairmanship shortly after the episode. He remains VeriFone's chief executive.
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