Lipman Electronic Engineering Ltd (LPMA) (LPMA)

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VeriFone wants to buy Lipman, say market whispers

23.3.06 | 10:54 By Yoram Gavison

Lipman Electronic Engineering (Nasdaq, TASE: LPMA) stock soared 8% on turnover of in 900,000 shares on Nasdaq last night. The share was propelled skyward by circulating speculation that the smart card terminals maker is a takeover target of rival company VeriFone, at a company value of $850 million. If so that would be a cool 25% premium over Lipman's opening price on Nasdaq that Wednesday.

Lipman is controlled by Mivtach Shamir Holdings (TASE: MISH) and First Israel Mezzanine Investors. It develops and markets terminals that read credit and smart cards.

Its career on Wall Street hasn't been entirely smooth: it released earnings warnings in June 2005 and in September that year, because of floundering business at its U.K. subsidiary Dione, which Lipman had bought in October 2004 (from a group of investors headed by Poju Zabludowicz) for $71 million.

For the year 2005 Lipman reported $20 million profit on revenues of $235 million, compared with netting $30.7 million on turnover of $180 million in 2004.

Over the last 12 months, shares in Lipman have retreated by 13%, based on the troubles at Dione and umbrage on the Street about the company's transparency issues. There has been some rebound lately, though.

Lipman stock in Tel Aviv
Like Lipman, San Jose-based VeriFone also supplies and installs smart card and check readers, as well as receipt printers and Internet commerce software. The company's market cap on Nasdaq is $2 billion, after a 163% climb since its initial public offering in May 2005. For the year 2005 VeriFone reported earning $33 million on revenues of $485 million, compared with a negligible $650,000 profit in 2004 on sales of $398 million.

For the first quarter of 2006, VeriFone reported 19% sales growth to $135 million and a 140% leap in net profit to $13.8 million. Its gross profit also improved for the fifth quarter in a row. Most of the upswing arrived from the American market, and from Russia.

While Lipman's spread around the world includes choice markets such as Turkey, Spain, England and China, VeriFone derives most - 60% - of its revenues from the U.S. market. In the U.K. and Spain Lipman is the leading supplier of card reading systems. VeriFone is however Lipman's chief rival in the world market.

VeriFone can boast 20% of the U.S. market for card reading terminals, while Lipman can claim another 10%. A merger between the two bitter rivals would create a large company with a real edge in America.

VeriFone has stated that expanding in Latin America and in the Far East are part of its goals. Buying Lipman would advance it in that direction. More specifically, in the post-results conference call, the company's CEO ? Dougles Bergron, said he wants to expand in Turkey and Spain, where Lipman has powerful presence.

Buying Lipman, if the preliminary talks mature into an actual deal, would be the cherry on the cake of the revolution at VeriFone. Before its IPO this had been a company with a $135 million hole in its shareholders' equity. But in two offerings, in May and September 2005, the company raised $133 million.

A Lipman spokesperson said that as is the company's custom, it does not comment on rumors about its relations with suppliers, customers, acquisitions, and mergers.

http://www.haaretz.com/hasen/spages/697825.html

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