PAY Pays More for Hypercom - Analyst Blog

Electronic payments processing company, VeriFone Systems, Inc. (PAY) will finally acquire rival Hypercom Corporation (HYC) for approximately $7.32 per share or $485 million, including net debt assumed by VeriFone. As of September 30, 2010, Hypercom had a long-term debt of $61.7 million.

The offer price of $7.32 is at a 19% premium to Hypercom's closing price of $6.13 on November 16, 2010 and is up 39.4% from the previous offer of $5.25 per share. Under the terms of the acquisition, Hypercom shareholders will receive a fixed ratio of 0.23 shares of VeriFone common stock for each Hypercom share they own. VeriFone will also assume Hypercom's outstanding warrants and stock options in the transaction.

This is the second time that VeriFone increased its offer price. Earlier, on Sep 27, 2010, VeriFone proposed to acquire all of the outstanding common shares for $5.25 each. At that time, Hypercom rejected the acquisition offer from VeriFone Hypercom stating that the proposal significantly undervalues its future prospects and is not in the best interests of its shareholders. Hypercom believed 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.

Given VeriFone's strong balance sheet of over $400 million of cash and investments, we were expecting the company to up its acquisition offer.  

Nevertheless, Hypercom has finally accepted the increased offer from VeriFone. The transaction is expected to close in the second half of 2011 and is anticipated to be accretive to VeriFone during the first twelve months of combined operations, excluding one-time costs.

Hypercom has established itself in a number of important European markets. Hence VeriFone expects that the acquisition of Hypercom will enable the company to expand its footprint in Continental Europe, where its market penetration has been lower, compared to the rest of the world.

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

The news boosted the share price of both the companies. Shares of VeriFone jumped 3.36% to close at $32.91 while shares of Hypercom soared 16.36% to close at $7.13.

 
HYPERCOM CORP (HYC): Free Stock Analysis Report
 
VERIFONE HLDGS (PAY): Free Stock Analysis Report
 
Zacks Investment Research