HP to Purchase VeriFone in Bid to Be a Leader in Cyber Cash
Computer giant Hewlett-Packard Co. has agreed to buy VeriFone Inc., a leader in technology for sending cash across the Internet, in a stock swap valued at $1.18 billion.
VeriFone is best known as a maker of credit card-swiping devices used by department stores, gas stations and other retailers. But the Redwood City, Calif.-based company is also developing home payment systems and other technologies that could become platforms for cash transactions over the global computer network.
The deal, announced Wednesday, combines two companies that are at the top of their separate but converging industries and underscores Hewlett-Packard’s ambition to be a dominant player in electronic commerce.
“The Internet is going to change the way companies and people do business,” said Glenn Osaka, general manager of enterprise systems at Hewlett-Packard. “And this is the underpinning of the movement of money in this new way of doing business.”
He also said the acquisition adds an important new layer to the array of products and services that Palo Alto-based Hewlett-Packard can offer its corporate customers. The company is the nation’s second-largest computer maker, with a particular focus on systems used by corporations to manage their accounts, handle orders and share information with customers and suppliers.
The magnitude of the deal surprised some analysts and sent VeriFone’s stock soaring to close at $47.25, up $17.125 on the New York Stock Exchange.
VeriFone reported a profit of $40 million on sales of $472 million in 1996, and the company’s systems handled nearly two-thirds of the more than $800 billion in electronic transactions in the United States last year.
But VeriFone’s stock had slumped to the $30 range after peaking at $52.625 last May. Analysts said that was because of disappointing earnings and the threat of rivals in Internet commerce, including Reston, Va.-based CyberCash Inc.
“Wall Street had become concerned about growth prospects and VeriFone’s ability to compete,” said one analyst, who asked that his name not be used.
But others said that VeriFone’s technology is promising and that the 14-year-old company’s long standing relationships with banks and retailers will give it an advantage as business transactions migrate to the Net.
Commerce over the Internet is still in its early stages but is expected to reach $95 billion in the United States by 2000, according to a recent report from International Data Corp., a Massachusetts research firm.
“It’s new, has very little in the way of existing competitive forces and has the potential to dwarf the current retail market,” said Keith Mullins, an analyst at Smith Barney in New York. “Who knows whether in 10 years the idea of going to a store and buying something is going to be quaint.”
Mechanics of Internet commerce are still unclear. But Lloyd Mahaffey, senior vice president of systems software at VeriFone, said the company is developing devices that will let consumers transfer cash digitally from bank accounts into hand-held cards or chips embedded in their home PCs, allowing them to make payments over the Net.
Last week, Citicorp said it would begin testing one of those devices, a “smart card” that consumers can use to store money downloaded digitally. VeriFone’s software is also used by Microsoft Corp. in an Internet commerce product designed for merchants.
According to the terms of the deal, VeriFone shareholders will exchange their shares for an equal number of Hewlett-Packard shares. The $1.18-billion value of the acquisition was based on VeriFone’s 23.3 million shares outstanding, and Hewlett-Packard’s closing stock price of $50.50 per share on Tuesday.
Hewlett-Packard’s stock dipped $1.125 to close at $49.375 on the New York Stock Exchange.
Following the acquisition, VeriFone will remain in Redwood City and operate as a wholly owned subsidiary of Hewlett-Packard. VeriFone’s chief executive, Hatim A. Tyabji, will continue in that role, the companies said.
