Intrigue Envelops Hypercom As It Mulls Ingenico Buyout Offer

Point-of-sale terminal maker Hypercom Corp. on Monday said it is talking with France-based Ingenico about the $332 million buyout offer Ingenico made last week, an offer that came at a time when Phoenix, Ariz.-based Hypercom is trying to buy the POS terminal unit of another French company, Thales S.A. Ingenico doesn't want the Thales business and indicated it might help Hypercom get out of that $120 million deal. Ingenico's buyout offer also comes on the heels of other news linking Hypercom and Ingenico. Last month, Ingenico hired Hypercom's top sales executive, Lisa Shipley, who was senior vice president of national sales for Hypercom in North America. Ingenico also sued the private-equity firm Francisco Partners L.P., which is providing a $60 million loan facility to Hypercom for the Thales acquisition. Ingenico alleges Francisco Partners breached a confidentiality agreement it had with Ingenico in arranging the Hypercom financing. Hypercom says the Thales unit would make it the third-largest POS terminal maker. But in buying Hypercom, Ingenico would resolve a problem it has in the United States?not enough terminals in high-margin small merchants served by independent sales organizations, says merchant-acquiring researcher and consultant Paul R. Martaus, president of Mountain Home, Ark.-based Martaus & Associates. Ingenico's strength is in large, multilane retailers, he says. “Ingenico's in every big-box store in the free world,” he says. Ingenico proposed to buy financially struggling Hypercom for $6.25 per share in cash. The offer represents a 52% premium over Hypercom's recent share price, Philippe Lazare, Ingenico's chief executive, said in a Feb. 5 letter to Hypercom that Ingenico released late Friday. In a statement released before the letter, Lazare said “We believe our offer provides a compelling value proposition for the Hypercom shareholders. Unfortunately, even though we have provided the company with evidence of our ability to finance the transaction and requested customary due diligence, Hypercom has been uncooperative with regards to a reasonable path forward. We are prepared to move quickly to execute on a transaction, but are not interested in proceeding if Hypercom consummates its proposed acquisition of Thales. We believe that a transaction between Ingenico and Hypercom would create significant value for the shareholders of both companies and urge the Hypercom board of directors to consider it carefully.” In a statement Monday morning, Hypercom chairman Norman Stout said that as part of Hypercom's duties to its shareholders, Hypercom has “opened discussions with Ingenico to more fully determine their ability to promptly make a credible, firm, and fully financed offer, with certainty of closing, as well as to determine the complete terms of their proposal.” Stout added, however, that “we will also continue to move forward with our intended acquisition of the e-Transactions business of Thales S.A., which we believe has a high certainty of closing and will generate significant shareholder value.” Hypercom on Dec. 20 said it planned to buy Thales' e-Transactions subsidiary for $120 million in cash, with another potential payment of up to $30 million depending on the combined companies' 2008 performance. In a recent filing with the Securities and Exchange Commission, Hypercom said the company has a binding offer with Thales and has made a $10 million deposit. Hypercom might have to forfeit that deposit and could be liable for damages if the deal falls through, the filing says. In his letter to Hypercom, Lazare said Ingenico “would be prepared to discuss with you the sharing of costs which Hypercom could incur in this regard,” but he gave no details. Meanwhile, Ingenico claims in its suit filed in the United Kingdom that Francisco Partners, in pursuing its financing commitment to Hypercom, breached a 2006 non-disclosure agreement it had with Ingenico. Details about that agreement were not immediately available. But as a result, Ingenico is demanding that Francisco Partners withdraw its funding for the Thales deal. In a Jan. 24 letter to Stout, Francisco Partners called the suit “a rather transparent and desperate attempt by Ingenico to interfere with the Hypercom/Thales transaction and its financing. We intend to defend ourselves vigorously.” Francisco Partners is in line to appoint two members to Hypercom's six-member board of directors when the deal closes. The firm also will be able to buy 10.5 million shares of Hypercom for $5 per share. Ingenico came to North America in 2001 when it bought IVI Checkmate Corp. IVI Checkmate was formed in 1998 when Toronto-based International Verifact Inc. bought Georgia-based Checkmate Electronics Inc. Because of the IVI legacy, Ingenico is Canada's dominant POS terminal provider, according to Martaus.