3M Co.’s $10.50-a-share offer to buy Cogent Inc., a manufacturer of fingerprint-identification systems, may see some competition from other bidders, analysts from Benchmark Co. and Lazard Capital Markets said.
Cogent climbed $2.18, or 24 percent, to $11.09 at 4 p.m. New York time in Nasdaq Stock Market trading, suggesting some investors anticipate a higher offer for the Pasadena, California-based company.
“It is possible for other bidders to emerge due to Cogent’s leading technology and strong competitive position in the biometrics and secure-identity market,” Josephine Millward, an analyst with Benchmark who recommends buying Cogent shares, wrote in an investor note.
3M agreed to buy Cogent today, tapping into the $4 billion global biometric market that it said is projected to grow more than 20 percent annually. 3M, a maker of IDs and laminates to protect against tampering, will add Cogent, which had $130 million in revenue last year, to its security-systems division.
Millward estimates 3M’s offer price is 6.6 times the 2011 enterprise value divided by earnings before some costs, similar to a price-earnings multiple. Comparable deals in the homeland- security and defense sector had multiples of 8 to 14, she said.
The bid for Cogent represents an 18 percent premium to the company’s closing price on Aug. 27. 3M, based in St. Paul, Minnesota, pays a 31 percent premium on average, Bloomberg data shows. The $943 million offer includes about $513 million in acquired cash.
‘Significant Cash’
The offer undervalues Cogent, given its “significant cash flow, defensible market opportunity, growing backlog” and strong balance sheet, Joel Fishbein, an analyst with Lazard Capital Markets in New York, wrote in a note today to investors.
Cogent makes fingerprint and palm print identification systems that allow customers to electronically capture print images, encode prints into files and compare a set of fingerprints and palm prints to a database containing potentially millions of prints.
The company employs about 500 workers and has operations in Ohio and Virginia, as well as in Austria, Canada, China, and the U.K. Founder and Chief Executive Officer Ming Hsieh will be part of the combined business, 3M said, without providing further details. He owned 39 percent of the company as of May, according to Bloomberg data.
“We would not be surprised to see other financial or strategic buyers emerge, given what appears to be CEO Ming Hsieh’s willingness to sell the company,” said Fishbein, who recommends buying the shares.
L-1 Identity
L-1 Identity Solutions Inc., a maker of biometric security products, said on Aug. 19 that it received bids from “several interested parties” after announcing in March it was exploring “strategic alternatives.”
L-1, based in Stamford, Connecticut, dropped 8 cents to $8.85 in New York Stock Exchange composite trading.
3M, the maker of Post-it Notes and Scotch tape, fell $1.35 to $79.65.
The price for Cogent is a “bit low,” according to Dylan Cathers, an analyst with Standard & Poor’s Equity Research.
3M’s identification and authentication products include document manufacturing and issuance systems for IDs, passports, and visas and security materials, such as laminates, to protect against counterfeiting and tampering.
“It does fit their long-term strategy of enhancing their product lines by looking at emerging growth areas, security being one of those,” said Jeff Windau, a St. Louis-based analyst with Edward Jones who recommends buying 3M shares.
3M said the acquisition will cut earnings by 9 cents to 10 cents a share in the first 12 months after the transaction. Excluding items such as the anticipated integration expenses, the deal will add as much as 2 cents a share over the same period, 3M said.
JPMorgan Chase & Co. was 3M’s financial adviser. Credit Suisse Group AG and Goldman Sachs Group Inc. advised Cogent.
To contact the reporter on this story: Will Daley in New York at wdaley2@bloomberg.net
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