VeriFone Systems Inc.’s unsolicited bid to acquire rival Hypercom Corp. for $5.25 in cash for each Hypercom share is too low, and Hypercom should hold out for at least $6 per share if offered in cash, analysts say.
Hypercom’s board of directors on Sept. 29 rejected VeriFone’s unsolicited $284 million bid to buy the point-of-sale terminal maker (
The board made the decision following VeriFone’s disclosure of the offer of $5.25 per Hypercom share (
Any Hypercom suitor should be willing to pay at least $6.25 per share, George Sutton, senior research analyst at Minneapolis-based Craig-Hallum Capital Group LLC, stated in a research note. The price should be higher than what San Jose, Calif.-based VeriFone offered because Hypercom strengthened itself with the completion of its 2008 purchase of the e-Transaction unit of Thales SA, Sutton said.
“With those combined businesses now fully consolidated and the business setting up for a strong second half in 2010, we find it quite unlikely that a deal would occur anywhere below the $6.25 price,” he said.
Hypercom shareholders will want more if they are to consider an offer to be a serious one, other analysts say.
“Given the progress made by the company over the last four quarter, Hypercom shareholders will not settle for an offer less than $6 a share in cash and are less likely to accept a stock offer,” notes Gil Luria, analysts at Los Angeles-based Wedbush Securities.
VeriFone said the price it offered was a 52% premium over Hypercom’s average share price for the 30 trading days leading up to its offer.
Douglas G. Bergeron, VeriFone’s chief executive, said that he would pursue the acquisition even if Hypercom’s board rejected the offer. “We are committed and resolute to seeing this transaction through to a successful closing,” he told analysts during a conference call yesterday.
VeriFone last week made a stock offer of $6 per share, which Hypercom’s board ignored. Subsequently, VeriFone made the follow-up cash offer public to force a reaction, and this time Hypercom’s board obliged.
“Hypercom’s board thoroughly reviewed VeriFone’s unsolicited proposal with the assistance of its independent financial and legal advisors and concluded that the proposal significantly undervalues the company and its future prospects and is not in the best interests of stockholders,” Hypercom said in a statement.
VeriFone’s offer is “opportunistic,” Philippe Tartavull, Hypercom CEO and president, says in a statement. “We believe that VeriFone’s proposal is opportunistically timed to exploit our second-quarter 2010 results, which were affected by supply-chain issues that have been resolved,” he says.
Hypercom on Aug. 4 reported a $1.26 million net loss for the quarter ended June 30. Hypercom earned a $1.26 million profit during the same quarter in 2009. Revenue dropped 1.6%, to $103.9 million from $105.6 million (
Problems surfaced when some of Hypercom’s semiconductor manufacturers and distributors and other suppliers reneged on their equipment commitments during the quarter, Hypercom said at the time.
“Hypercom is currently experiencing the strongest growth in global order demand in recent years, and we are focused on converting this demand into revenue in the second half of 2010,” Tartavull said.
If VeriFone succeeded in purchasing Hypercom, it could “leapfrog” Ingenico, Wedbush’s Luria says. The deal would boost VeriFone’s Western Europe presence, “a region where VeriFone’s market share has lagged,” he says.
And VeriFone is prepared to divest Hypercom’s U.S. business should an acquisition happen to address potential regulatory concerns and to expedite the deal, Bergeron said.
VeriFone’s interest in Hypercom also may provoke renewed interest from Ingenico, Luria speculates. “Although Ingenico’s own unsolicited bid for $6.25 per share in 2008 was rejected by Hypercom’s board, we believe Ingenico has made other attempts to buy [Hypercom] as a last chance to gain a big foothold in the lucrative U.S. channel business,” he says.
Craig-Hallum’s Sutton similarly does not rule out Ingenico interest in Hypercom.
“Ingenico … may be busy with its own recent acquisitions and would likely have European Union antitrust challenges, but it can’t be ruled out at this point as an interested party,” Sutton says.
An Ingenico spokesperson says the company would not comment.
Hypercom also announced today that it approved a stockholder’s rights plan that would be beneficial to ensuring stockholders “realize the long-term value of their investment in Hypercom.”
In trading earlier today, Hypercom’s stock was selling for $6.16 per share, up $1.93 from its Wednesday closing price of $4.23.
VeriFone shares, trading at $30.11, gained $1.06 from the Wednesday close of $29.05.
