The opening scene of a by-now-familiar drama has just been completed in the latest unfriendly merger transaction. Verifone Systems, Inc. (NYSE:PAY) first tried to sweet talk Hypercom Corp. (NYSE:HYC) into a deal where Verifone offered to pay around $5.85/share in Verifone shares for all Hypercom’s shares. According to Verifone, Hypercom was not interested in “a meaningful discussion” about that offer, so Verifone had to take matters into its own hands.

Verifone has now offered $5.25/share in cash for the smaller company, an offer Hypercom has rejected on the grounds that it is “opportunistic and intended to disrupt [Hypercom’s] business, which has successfully taken market share from VeriFone in several markets.” To add emphasis, Hypercom adopted a stockholder rights plan, the details of which it has promised to disclose in an 8-K filing.

It’s a bit difficult to see Hypercom’s point. Over the past 12 months, Hypercom’s stock has risen nearly 40%. Darn good, until you compare Verifone’s share price jump of more than 80% in the same period. Hypercom’s shares tumbled around 40% from a 52-week high of over $5/share in early June to around $3/share in late August.

In Hypercom’s second quarter earnings report, the company posted non-GAAP operating income of $5.66 million, down from $8.42 million in the same period a year ago. Non-GAAP product margins were also down, from 37.5% to 33.9%.

Of course Verifone rubbed that in as part of the company’s letter to Hypercom: “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.”

On one hand, the potential acquirer is saying we’re going to save you from continuing disaster. On the other hand, the potential acquired is saying we’re eating your lunch.  VeriFone’s rise today hit a new 52-week high and signals the highest levels since the firm’s accounting blew it apart.

Hypercom’s shares have rocketed to a new 52-week high of $6.25/share this morning, more than 45% higher than yesterday’s close and $1/share higher than Verifone’s offer. Volume is about 20 times Hypercom’s average. Investors obviously think the bidding has just started for Hypercom.

It would seem that at least some investors don’t see anyone coming in with a higher bid for Hypercom, and that Verifone will ultimately prevail.  Either way, investors are further signaling the VeriFone is back from the grave and that the turnaround will not fail.

Paul Ausick

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