Should Cogent Trade Like a Bidding War is Coming? (COGT, MMM, ID)

Cogent, Inc. (NASDAQ: COGT) is the newest of the M&A stocks in an environment where premiums and share prices are sometimes being taken for granted.  3M Co. (NYSE: MMM) offered to acquire the biometric identification solutions provider for $10.50 per share.  The value of the merger is $943 million on the surface, but it is really a $430 million acquisition if you choose the ‘net of cash’ value.  The stock is trading at a premium to its acquisition price, and we are curious to know if this should really have a premium.

The board of directors of Cogent Systems is unanimously recommending that Cogent shareholders accept the offer and Cogent’s CEO & founder Ming Hsieh (and certain entities affiliated with him) have agreed to tender their shares to the offer.  Hsieh owns more than 15.2 million shares.

What needs to be considered is that L-1 Identity Solutions Inc. (NYSE: ID) is also in an auction process that is said to be in the final stages.  Both companies are in the field of security solutions and they have overlaps in biometric security.  L-1 has a market cap of $838 million and its $9.00 share price compares to a 52-week range of $5.67 to $10.42.

You can expect that one of the law firms (or more than one) will get a press release out early this morning that they are “investigating to see if shareholders are getting top dollar or not” as you now see on almost every single merger announcement.

Cogent’s 52-week trading range is $7.96 to $11.33.  For whatever it is worth, this was a $25.00 stock five years ago.  Shares opened up about 21% at $10.79 this morning, some $0.29 higher than the $10.50 bid price.

With so many new M&A targets out there, it is not really a surprise at all that there is a climate where unrelated buyouts will trade as though they all have multiple acquirers interested in their operations.  That is true for some and is not the case for others.  We’ll be keeping en eye on the price of Cogent, which is again at a merger-arb premium rather than a discount.  We’d also keep a watch out on L-1 as well.

JON C. OGG