SafeNet offer called too low

The Baltimore Sun

Analysts said yesterday that a bid by a California private equity firm to buy Harford County technology company SafeNet Inc. is too low, and one of the Belcamp company's largest investors said they were "very disappointed" with the offer.

SafeNet, which has been under federal investigation for its stock options awards, said Monday that it had agreed to be acquired by Vector Capital of San Francisco for $28.75 a share, making the deal worth about $634 million.

The company's board has unanimously approved the acquisition, but the deal requires that 78 percent of SafeNet shares be tendered. If SafeNet, which has delayed filing financial reports as a result of the probe, becomes current in its regulatory filings, the company will need only a majority of its shares tendered.

Shares of SafeNet closed yesterday at $28.46, up 11 cents.

"It comes down to what the shareholders do at this point," said Todd C. Weller, an analyst for Stifel Nicolaus in Baltimore who recommended they reject the bid.

Curtis Gazdewich, a vice president at Burgundy Asset Management Ltd., one of SafeNet's largest investors with 1.1 million shares as of Dec. 31, said in an e-mail yesterday that, "We are very disappointed with the Vector bid."

Dimensional Fund Advisors Inc., an index fund manager and SafeNet's largest shareholder with 2.2 million shares as of Dec. 31, declined to comment specifically on the bid.

"Obviously we're looking to do the best thing for shareholders, and we consider each of these things on their own merit," said Weston Wellington, a vice president at Dimensional Fund Advisors.

Weller, the Stifel Nicolaus analyst, said that in his firm's conversations with investors, the consensus is that Vector's bid is too low. Weller, in his note recommending rejection, believes a fair price for SafeNet would be about $32 per share. Stifel Nicolaus does not own SafeNet shares.

"We find it hard to believe that this offer will yield the necessary shares tendered for this offer to come to fruition and our advice to shareholders would be to not accept the $28.75 tender as we feel it is too low," the note said.

Avondale Partners in Nashville, Tenn., put out a note yesterday echoing the sentiment that Vector's bid was not high enough. The firm downgraded SafeNet's stock from outperform to market perform, and lowered its price target to $28.75 from $32.

Another bid

Friedman Billings Ramsey also lowered its price target to $28.75, down from $34.

Analysts said yesterday that it was possible that another bidder would emerge for SafeNet.

David Fishman, a principal at Vector Capital, said analysts and investors should reserve judgment until more information emerges. SafeNet has said it would disclose all the alternatives it examined and the board's reasons for choosing Vector in documents to be filed soon with the Securities and Exchange Commission.

"My basic point of view is people should wait to see the public filings, and I think what they'll find is the company ran a very thorough process and came out with what they think is the best alternative for shareholders," Fishman said.

The acquisition would make private the very public scrutiny the encryption technology company has undergone over the past several months. A special board committee found improper accounting for options awards, its top two executives were ousted, and SafeNet expects noncash charges of up to $20 million to result from the restatement of six years of financial results.

Delisting threat

J. Carter Beese Jr., a former SEC commissioner who joined SafeNet's board and the special committee in June, said yesterday that the Vector acquisition would be a positive.

"Anytime you have an event like this, it clearly moves you closer to a solution," Beese said of the bid.

SafeNet's shares remain under threat of delisting by Nasdaq because of delays in issuing financial reports. Nasdaq issued delisting warnings to SafeNet in August and October, and the company was granted a stay last month. Gregg Lampf, director of investor relations, said SafeNet has until March 30 to submit additional information to Nasdaq before a review panel decides whether to grant a second extension.

Weller, of Stifel Nicolaus, said the risk of being delisted is not a compelling reason for the company to sell. "To me, delisting or the prospects for delisting would not be a real valid rationale for making a decision to, one: sell the company; and two: accept a specific offer," he said.

Sun reporter Jamie Smith Hopkins contributed to this article.

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