Justice Department Seeks to Block VeriFone-Hypercom Merger on Antitrust Grounds

The U.S. Department of Justice filed suit Thursday to stop VeriFone Systems Inc. from buying Hypercom Corp., saying the proposed $485 million stock deal “would substantially reduce competition in the U.S. point-of-sale terminal market.” The DoJ said the current plan to sell most of Hypercom’s U.S. assets to the North American subsidiary of France-based Ingenico S.A. did not address its antitrust concerns.

VeriFone and Hypercom announced the deal last November and had hoped to close it in 2011’s second half, a goal they’re still seeking. “VeriFone and Hypercom intend to work with the DoJ to better understand its concerns and assess various options for the planned divestiture of Hypercom’s U.S. business, including the possibility of a divestiture to an alternative buyer,” the two said in a joint statement late Thursday. “The companies continue to believe in the compelling benefits that the merger will provide to customers, employees, and stockholders. Assuming a successful resolution of this and other closing conditions, the companies believe that the merger can be completed in the second half of 2011.”

Ingenico appears ready to bail on its $54 million deal with Hypercom to buy most of Hypercom’s U.S. assets as VeriFone’s remedy to antitrust concerns. According to an April 4 regulatory filing from Hypercom, the terms list five conditions for termination, one of which is an investigation into the deal by the DoJ as of June 15. According to a report from investment firm Goldman Sachs and Co., the DoJ opened such an investigation on April 20. Either Hypercom or Ingenico also could cancel the deal if the DoJ or the Federal Trade Commission obtained a temporary restraining order or permanent injunction to block the asset sale.

In a statement issued Thursday night, Ingenico said it “takes note” of the DoJ’s decision to sue. “Considering the timeline, Ingenico anticipates that it may not be in a position to successfully close the deal,” the statement says. “Ingenico regrets the decision of the DoJ as it considers that the transaction would make sense for the customers, reinforcing competition on the U.S. market.” A spokesperson did not respond to a Digital Transactions News request for further comment.

Meanwhile, a spurned suitor for Hypercom’s assets, specialty POS terminal maker ViVOtech Inc., on Friday said it was again ready to do a deal. San Jose, Calif.-based ViVOtech, which makes contactless terminals that use near-field communication (NFC) technology, went public in March with its wishes to buy Hypercom’s assets, but lost out to Ingenico. “I can tell you that we have re-approached VeriFone,” chief executive Michael “Mick” Mullagh tells Digital Transactions News on Friday.

San Jose-based VeriFone is the leading U.S. POS terminal maker by revenues while Ingenico is No. 2 and Scottsdale, Ariz.-based Hypercom is No. 3, according to estimates from Digital Transactions magazine. Together, VeriFone and Hypercom control more than 60% of the market for POS terminals used by the largest U.S. retailers, according to the DoJ. Lesser competition after the deal would lead to “higher prices and reduced innovation, quality, product variety, and service,” the department’s release says.

In proposing to buy Hypercom, VeriFone said it was mainly interested in the company’s strong European business and was willing to sell the U.S. operations if regulators had antitrust concerns. But the plan disclosed in April to sell Hypercom assets to Ingenico didn’t resolve the DoJ’s concerns about POS market competition “and in some ways exacerbates them,” Christine Varney, assistant attorney general in charge of the department’s Antitrust Division, said in the release.

“The assets are to be sold to another significant competitor in the market in a manner that does not create a new, independent, long-term competitor,” the DoJ said. “In addition, the structure of the agreements between Ingenico and VeriFone, the only two significant POS sellers in the United States post-merger, enhances VeriFone and Ingenico’s ability to coordinate pricing for all POS terminals.” The release did not go into detail about that point, and the lawsuit wasn’t immediately available.

ViVOtech’s Mullagh said his company has the financing and technological wherewithal to step up as the independent, strong competitor in the U.S. POS terminal market that the DoJ seems to want. “If the Hypercom assets are spun off to a viable third party, the current market structure is preserved,” he says.

The DoJ filed the suit in U.S. District Court in Washington, D.C. European competition authorities also are expected to review the proposed merger.