Six weeks ago, point-of-sale terminal maker VeriFone Systems Inc. made an unsolicited, $283 million cash bid for smaller U.S. rival Hypercom Corp., an offer Hypercom immediately rejected as too low and described as “opportunistic and intended to disrupt our business.” Hypercom went so far as to adopt a so-called poison pill meant to rebuff hostile suitors. All that was forgiven Wednesday morning when the companies announced that Hypercom had agreed to be acquired by VeriFone in an all-stock deal that values Hypercom at $485 million.
The deal shores up gaps in VeriFone’s reach, particularly in Germany and other parts of Central and Southern Europe. Scottsdale, Ariz.-based Hypercom became a major player there in 2008 when it bought France-based Thales S.A.’s POS terminal business and also rejected a buyout offer from another French company, Ingenico, the world’s largest POS terminal maker. “With Hypercom’s complementary geographies, we will bolster our global presence, expand our footprint in Continental Europe, and create a leader in our space with truly global reach,” VeriFone chief executive Douglas G. Bergeron said at a conference call with analysts early Wednesday.
Neither Bergeron nor Hypercom president and chief executive Philippe Tartavull detailed how the deal came together in the wake of the nasty public exchanges between the two companies in late September. The two began talking secretly in 2009, but San Jose, Calif.-based VeriFone went public with its cash offer after accusing Hypercom’s board of “failure to engage in a meaningful discussion” about a stock offer VeriFone made Sept. 24 (Digital Transactions News, Sept. 29).
It’s likely, however, that money talked. In brief remarks, Tartavull said merging Hypercom and VeriFone would create “a truly world-class company … the combination of which, I think, will significantly benefit our shareholders.” Hypercom stockholders will get 0.23 shares of VeriFone common stock for every share of Hypercom they own, which values their stock at $7.32 per share. That represents a 19% premium over Tuesday’s $6.13 close, a 39% premium over the $5.25 per-share cash offer, and an increase of 73% over Hypercom’s Sept. 29 closing price of $4.23. VeriFone also will assume Hypercom’s outstanding warrants and stock options.
Still, by mid-afternoon Wednesday four law firms had announced plans to investigate the deal on grounds that Hypercom should have held out for a better deal or shopped for other buyers who might have paid more than VeriFone. At least one firm cited an analyst’s report claiming Hypercom would be worth $9 a share. A Hypercom spokesperson did not respond to a Digital Transactions News request for comment.
The proposal also created questions about regulatory approvals and the future of Hypercom’s U.S. business. The companies don’t plan to close the deal until the second half of 2011, though Bergeron insisted he expects it will encounter no major hurdles despite the lengthy lead time. “Largely it’s due to the fact that we’re dealing with Europe and historically some of the regulatory timeframes are a little longer than in the U.S,” he said.
Bergeron deflected several questions about Hypercom’s U.S. business, which in September he described as “small” and one VeriFone might sell to satisfy antitrust concerns over the combination of the two major American terminal makers. For now, any sale would seem to hinge on whether U.S. authorities raise such issues. “If required we will divest the U.S. piece, and we’ll make announcements as announcements are available on that,” he said.
While saying that the combined company would cut administrative, duplicative product-development and other costs, Bergeron also said VeriFone would support Hypercom’s products. He said that in previous acquisitions, Hypercom has not only kept acquired product lines current, but also enhanced them. “I think Hypercom customers should feel very comfortable … they will be well taken care of inside the VeriFone family.”
Payments researcher Adil Moussa of Boston-based Aite Group LLC says in an e-mail message to Digital Transactions News that the deal will likely strengthen VeriFone. “VeriFone has taken a big step in becoming the world leader in terminal production,” he says. “This move will allow, over the long haul, VeriFone to offer great quality terminals at a lower cost.” Moussa, however, also warns that “we risk seeing a homogenization of the market that doesn’t allow much differentiation.”
In addition to regulatory approvals, the deal needs the OK of Hypercom’s shareholders but not VeriFone’s.