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Verifone attempts to acquire Hypercom

Thursday 7 October 2010

Hypercom stated that “the proposal significantly undervalues its future prospects and is not in the best interests of its shareholders. Hypercom believes that VeriFone’s proposal is opportunistic and intended to disrupt its business as it believes it has successfully taken away market share from VeriFone in several markets.”

Hypercom noted that it expects to significantly exceed Wall Street securities analysts' consensus estimate of US$ 112 million (EUR 81.7 million) in net revenues for Q3/2010. The Company will provide additional details on its Q3/2010 financial results following the quarter's close.

Earlier, last week, VeriFone proposed to acquire all of the outstanding shares of Hypercom Corporation at a 0.21x exchange ratio. This offer represented a premium of 52% over the closing price of US$ 3.84 (EUR 2.8) of Hypercom shares on Sep 23 and 69% over the average share price for the last thirty trading days. But Hypercom rejected the offer.

VeriFone intended to acquire Hypercom to expand its footprint in Continental Europe, where its market penetration has been lower, compared to the rest of the world.

VeriFone also stated that the acquisition would throw up significant operating synergies that would emanate from eliminating product overlap, administrative costs and sales expenses in many markets. The combination of the two businesses would lead to better product development along with significant supply efficiencies for the combined business.

According to Nilson Report, the combination of the two POS terminal vendors would create the largest vendor in the market providing approximately 5 million units annually. So far, Ingenico is the market leader with an annual shipment of 4 million units.

VeriFone has a strong balance sheet with over US$ 400 million (EUR 291.8 million) of cash and investments and it might increase its offer price yet again.

Analysts believe that NCR, American technology company specializing in self-service kiosks, POS terminals and ATMS, Diebold, a US-based manufacturer of ATMs, First Data, now a KKR-portfolio company, Ingenico and even Hong Kong-based POS terminal vendor PAX technology are in the list to offer a potential counter offer against Verifone.

In 2008, Ingenico announced it has sent a letter to the Board of Directors of Hypercom, offering to acquire all of the outstanding shares of Hypercom for US$ 6.25 (EUR 4.31) per share in cash, which is equivalent to a total value of US$ 332 million (EUR 229 million) for the whole company (cf. Smart Insights Weekly #07-08).

Currently, all POS terminal vendors are trying to move beyond the traditional business of selling only hardware and software of payment system, in order to offer value added service. Verifone, fox exemple, is developing its taxi terminal business to the extent the company acquired the media management business from Clear Channel advertising company (cf. Smart Insights Weekly #10-02). It has also acquired the assets of Way Systems, a provider of mobile POS solutions and gateway services for mobile merchants (cf. SIW #10-37), and signing a contract with Bling Nation to distribute contactless chip-based mobile loyalty and payment applications (cf. SIW #10-39).