Zacks_Analysts' Blog : PAY Sells Hypercom's Payment Business - Analyst Blog

Electronic payments solutions provider VeriFone Systems, Inc. (PAY) and Hypercom Corporation (HYC) recently announced that both of them have reached an agreement to sell the U.S. payment systems business of Hypercom to Ingenico S.A, for approximately $54 million.

The transaction is expected to close before VeriFone completes the acquisition of Hypercom, which is expected in the second half of 2011.

The payment business generated revenues of $61 million in 2010. Following the completion of the merger, VeriFone will retain Hypercom’s non-payment terminal Networking products operations in the U.S.

In November 2010, VeriFone announced that it will acquire rival Hypercom Corporation for approximately $7.32 per share or $485 million, including net debt assumed by VeriFone. As of September 30, 2010, Hypercom had a long-term debt of $61.7 million.

Under the terms of the acquisition, Hypercom shareholders will receive a fixed ratio of 0.23 shares of VeriFone common stock for each Hypercom share they own. VeriFone will also assume Hypercom’s outstanding warrants and stock options in the transaction.

Hypercom has established itself in a number of important European markets. Therefore, VeriFone expects the acquisition of Hypercom to enable the company to expand its footprint in Continental Europe, where its market penetration has been lower compared with the rest of the world.

VeriFone had stated earlier that the acquisition will bring significant operating synergies that will emanate from eliminating product overlap, administrative costs and sales expenses in many markets.

The payment business sale is part of the contemplated divestiture plan previously announced by VeriFone in connection with its proposed acquisition of Hypercom.

We have an Outperform recommendation on VeriFone Systems, supported by a Zacks #2 Rank, which translates into a short-term rating of Buy.