Can the maker of Scotch Tape make its attempt to take over a small Pasadena company stick?
3M Co.’s plan to acquire Cogent Inc. sent the company’s stock soaring above the offer price, which shows that investors believe another suitor will step up with a better offer, or 3M will be forced to sweeten the deal on its own.
On Aug. 30, the St. Paul, Minn.-based industrial conglomerate said it wants to acquire all outstanding shares of Cogent, which makes security identification systems that work by scanning a person’s fingerprints, face or eye. The cash offer was $10.50 a share, or $943 million.
By the end of the day, the stock had gained 24 percent to close at $11.09, well above 3M’s offer price, and stayed up there in the following days.
Several analysts called the offer low and began speculating whether other companies would bid it up.
“At first blush, 3M’s offer appears light,” wrote analyst Brian Gesuale at St. Petersburg, Fla.-based Raymond James in a note to investors. “A higher acceptable takeout price is warranted.”
Brian Ruttenbur, an analyst with Birmingham, Ala.-based Morgan Keegan & Co., said other potential buyers could be Safran, NEC, Northrop Grumman and Lockheed Martin. He believes that 3M is trying to close the deal quickly in order to block competition.
3M plans to start a tender offer for all shares by Sept. 14.
Donna Fleming Runyon, a spokeswoman for 3M, said the company expects to finalize the acquisition by early to mid-October if 90 percent of the shareholders respond to the tender offer. If the response falls below that threshold, it will require a shareholder vote and could be delayed until December.
Despite speculation of a bidding battle, 3M has an advantage: Ming Hsieh, ranked by the Business Journal in May as No. 50 on the list of Wealthiest Angelenos, is chief executive of Cogent, and he supports the 3M offer. He owns 39 percent of outstanding shares.
Frederick Ziegel, an analyst at Washington, D.C.-based Blue Water Capital, said the deal makes sense for both companies. 3M would bring Cogent’s biometric products, now sold mostly to domestic government agencies to its international clients.
Ziegel noted that Cogent has about $513 million in cash, so if that’s deducted from the acquisition price, 3M would be paying $430 million for Cogent’s business. That calculates to about 15 times estimated operating earnings for 2011, about the midrange for security companies.
So far, one major shareholder has sued Cogent, claiming the price is too low. At least three class-action attorneys have launched investigations of the proposed transaction. One cited Gesuale’s target price of $16 per share as evidence of a low price.
3M spokeswoman Runyon said the legal action was without merit. Cogent did not respond to repeated calls for comment.
