--Apple to buy security technology provider AuthenTec for about
$355 million
--AuthenTec makes fingerprint-sensing technology,
mobile-security products
--Deal is a 58% premium to Thursday's closing price
(Updates throughout with additional details and analyst
comments.)
By Shara Tibken
Apple Inc. (AAPL) agreed to buy AuthenTec Inc. (AUTH) for about
$355 million, bolstering the electronics giant's security
capabilities and patent portfolio while putting a chunk of its
massive cash holdings to work.
Pricewise, the deal is one of Apple's bigger, although it only
represents 0.3% of the company's cash holdings.
AuthenTec got its start by providing fingerprint authentication
sensors for computers, but it has been benefiting of late from
increased adoption in the mobile sector, including by Apple rival
Samsung Electronics Co. (SSNHY, 005930.SE). The company, in
particular, has been focused on providing security for mobile
payments and networks.
Chief Executive Lawrence Ciaccia in May noted AuthenTec's market
opportunity is "large" and that it's "very well-positioned" to take
advantage of growing trends like mobile payments and employees
bringing their own devices to work.
AuthenTec holders, which still need to approve the deal, will
receive $8 a share in cash, a 58% premium over Thursday's close.
The stock is trading above the deal's price, at $8.25, an
indication that some investors are hoping for a higher offer from
either Apple or another party.
"Given the fair price, there's always competitiveness in the
marketplace where someone could come in and offer a little bit
more," BWS Financial analyst Hamed Khorsand said.
AuthenTec shares had climbed 87% over the past 12 months through
Thursday's close and set a nearly four-year high earlier this week.
They last traded above the offer price in summer 2008 and later
slid to under $2 a share during the financial crisis.
Shares of Apple rose $2.94 Friday to $577.82.
Apple, known for being secretive, didn't disclose its intentions
for the technology, with spokesman Steve Dowling saying Apple buys
smaller technology companies from time-to-time and generally
doesn't discuss its purposes or plans. Even AuthenTec said in its
filing with the Securities and Exchange Commission that it "cannot
comment on Apple's intentions" for the company. AuthenTec wasn't
immediately available to comment further Friday.
But analysts speculated that Apple could be buying AuthenTec in
part for its patents. As part of the deal, Apple will pay AuthenTec
$20 million to acquire non-exclusive licenses and certain other
rights with respect to hardware technology, software technology and
patents of the company.
Also, in a defensive move, Apple has the right to pay $115
million to license nonexclusively the technology forever. This,
along with a technology-development agreement, gives "Apple
assurances in the event merger does not proceed," Wells Fargo
analyst Maynard Um said.
Gartner analyst John Pescatore said AuthenTec has been building
its intellectual property portfolio over the years, and its
technology could help Apple continue its trend of controlling the
hardware and software in its devices.
"In the future, there will be more and more of a need to have
strong protection of content," he said. "And if companies really
want mobile payments, there needs to be security baked into these
devices."
Mobile payments are gaining more acceptance and attention of
late, with Apple rivals such as Google Inc. (GOOG) focusing on the
sector. Many new devices offer near-field communications technology
to enable such payments, something that is a focus for
AuthenTec.
Along with mobile payments, Apple could use AuthenTec's
technology to enable data rights management capabilities to protect
content being shared and distributed across multiple PCs, TVs and
mobile devices, ISI Group analyst Brian Marshall said. It also
could use the technology to further appeal to business users with
integrated fingerprint sensors on its various devices, and virtual
private network functionality for Apple's operating system.
"We view the deal as consistent with [Apple's] strategy to
acquire technology assets it sees as important for product
differentiation," Mr. Marshall noted.
Earlier this week, Apple said its fiscal third-quarter earnings
climbed 21% as the consumer electronics giant continued to see
stronger iPhone and iPad sales, though overall earnings and revenue
grew less than analysts had expected. The company reported $117.2
billion in cash holdings as of June 30.
In May, AuthenTec said its first-quarter loss had widened to
$1.5 million on revenue of $17.5 million, up 13% from a year
ago.
Some of AuthenTec's customers include networking gear maker
Cisco Systems Inc. (CSCO), computer giants Hewlett-Packard Co.
(HPQ) and Lenovo Group Ltd. (LNVGY, 0992.HK), and handset makers
Nokia Corp. (NOK, NOK1V.HE) and Motorola Mobility, now owned by
Google. Earlier this month, AuthenTec said Samsung--one of Apple's
biggest rivals--chose AuthenTec's VPN security for use in new
Android smartphones and tablets, including Samsung's blockbuster
Galaxy S III phone.
If either Apple or AuthenTec back out of the deal, then the
retreating party has to pay a termination fee of nearly $11
million. If the deal doesn't get regulatory approval, then Apple
has to pay AuthenTec $20 million.
AuthenTec is not allowed to shop itself to other bidders, but
the company can look at "unsolicited alternative acquisition
proposals" until the merger agreement with Apple is approved by
AuthenTec's shareholders.
--Saabira Chaudhuri contributed to this report.
Write to Shara Tibken at shara.tibken@dowjones.com
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