3M Co. on Monday announced plans to acquire a California manufacturer of fingerprint identification systems for $943 million, but the stock market appeared to conclude that price might not be high enough.
3M announced its $10.50-a-share cash offer for Pasadena-based Cogent Inc. before the market opened, and Cogent's stock started the day at $10.56 a share. It closed at $11.09, up more than 24 percent from Friday's close and its highest price since last January. Almost 19.5 million shares changed hands, about three times the normal daily volume.
The sharp rise suggests some investors believe another suitor may emerge and top 3M's price. Two analysts who have long had target prices in the teens on Cogent stock told Bloomberg News they believed 3M's bid undervalued the California company.
Josephine Millard of Benchmark Co. said comparable deals had been done with higher multiples. Joel Fishbein of Lazard Capital Markets said the offer undervalues Cogent, in part because of the company's robust cash flow. The $943 million price includes about $513 million in cash on Cogent's books that 3M would acquire, making its real offer about $430 million.
A New York law firm announced plans to investigate possible breaches of fiduciary duty by Cogent's board of directors, which unanimously recommended that shareholders accept 3M's offer. Cogent "may not have adequately shopped itself before entering into this transaction," said a release by Wolf Haldenstein Adler Freeman & Herz. Both 3M and Cogent declined to comment.
Nicholas Heymann, an analyst who follows Maplewood-based 3M for Sterne, Agee & Leach in New York, said he believes the offer is fair, in part because of integration expenses 3M will incur in combining Cogent's business with its own. 3M said Monday it expects the acquisition will dilute earnings by 9 or 10 cents a share in the 12 months after completion of the deal. The acquisition is expected to add one to two cents a share to earnings, not including the impact of integration expenses and accounting adjustments.
Heymann also pointed out that Cogent founder and CEO Ming Hsieh, who as of May owned almost 40 percent of his company's stock, has already agreed to tender his shares to 3M. Heymann said it's doubtful Hsieh would have done that if he thought it was likely he could get a better price elsewhere.
"I think Cogent believed [the 3M offer] was the best possible mix of a cash price and a good partner that has the marketing and distribution reach to put it into global markets," Heymann said. Cogent has about 500 employees, and Hsieh will remain with the business in an unspecified role.
