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VeriFone Makes Hard Push for Hypercom

Shares of Hypercom soared in extended trades after rival VeriFone unveiled a hostile $5.25 per share cash acquisition proposal.



) -- Shares of



soared in extended trading on Wednesday after fellow electronic payment processing company

VeriFone Systems


launched a hostile acquisition bid.

San Jose, Calif-based VeriFone said it's proposing to acquire Hypercom for $5.25 a share in cash, and released a letter it's sent to the members of Hypercom's board, expressing disappointment at the lack of "meaningful discussion" between the parties about a stock-for-stock transaction at a higher valuation which was proposed on Sept. 24.

"This proposal is extremely attractive on every relevant financial metric," said Douglas Bergeron, VeriFone's CEO, in the letter. "Consummation of the proposal would insulate your shareholders from the risk that Hypercom faces should it continue to experience disappointing financial and operating results in these challenging markets."

Hypercom shares were last quoted at $6.16, up 45.6% from their regular session close, on afterhours volume of 1.3 million, according to

. The company, which is based in Scottsdale, Ariz., has yet to respond publicly to the VeriFone press release.

In its letter, VeriFone said the current $5.25 per share represented a 37% premium to the closing price of $3.84 for Hypercom's stock on Sept. 23, and that its previous stock offer represented a 52% premium by that measure, which infers a value of around $5.85 per share.

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Of its public disclosure of the offer, VeriFone cited an "urgency of proceeding promptly with this transaction unfettered by any delaying or frustrating actions Hypercom may pursue and before market rumors further distort the trading in your shares" and said it and its advisors were available to negotiate a definitive agreement "as soon as possible."

In a conference call to discuss the hostile offer, VeriFone's Bergeron said Hypercom was attractive because of its solid presence in Continental Europe, and added that VeriFone would be willing divest Hypercom's small U.S. presence to get antitrust approval of the combination if necessary. He said he couldn't say much about the proposal "due to pending litigation" but described VeriFone as "committed and resolute" about getting the deal done.

"This is not a must-have deal for us," Bergeron said on the call. "But it's a great-to-have opportunity to turn a business that has not been consistently profitable or relevant for many years into a great extension of the VeriFone platform of services and solutions."

In the Q&A portion of the call, Bergeron said VeriFone expects the acquisition of Hypercom would be "solidly accretive" in the first quarter of consolidation and that its current quarter is going "extremely well."

Hypercom shares were up 32% year-to-date based on Wednesday's close at $4.23. The stock has risen in all four sessions since Sept. 23, gaining 10% over that stretch. The company reported its second-quarter results on Aug. 3, posting a net loss of $1.3 million, or 2 cents a share, on revenue of $103.9 million. Third-quarter results are expected on Nov. 2, and the current average estimate of analysts polled by

Thomson Reuters

is for earnings of 8 cents a share in the September quarter on revenue of $112.6 million.

VeriFone's stock has done extraordinarily well so far in 2010, appreciating 77% through Wednesday's close at $29.05. The company won't report its current fiscal fourth-quarter results until mid-December but right now Wall Street is looking for a profit of 36 cents a share on revenue of $262.6 million in the three-month period.


Written by Michael Baron in New York.

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