Faced with a federal investigation into its stock options practices and the need to restate years of financial results, SafeNet Inc. contacted 35 potential buyers before agreeing to be bought by San Francisco private equity firm Vector Capital, the Harford County company disclosed in a document filed late yesterday with the SEC.
Seventeen of those signed confidentiality agreements and conducted due diligence, and three - including Vector Capital - submitted bids for all or part of the embattled Harford County data encryption company, according to the Securities and Exchange Commission filing.
At one point SafeNet was so concerned that its delayed financial reports would prevent potential buyers from securing financing that its adviser, Wall Street giant Merrill Lynch & Co. Inc., offered to supply financing, the document disclosed. The financing was ultimately supplied by other banks.
SafeNet announced a $634 million deal last week to be acquired by Vector Capital Corp., of San Francisco, for $28.75 a share.
Several analysts have said the share price is too low, and three lawsuits have been filed on behalf of stockholders alleging the company breached its fiduciary duties to shareholders with the merger.
"We were very aware of what people's initial reactions were, and we really tried to write a document that answers as much as we possibly can the questions that have been out there," Gregg Lampf, director of investor relations for SafeNet, said yesterday.
The documents paint a picture of a board of directors that was very much concerned about the company's situation.
In its deliberations, SafeNet's board weighed the risk of remaining independent given the federal investigation into the backdating of options, pending lawsuits, and investor uncertainty.
The stock faces de-listing by the Nasdaq Stock Market over the delayed financial reports. After deciding to solicit offers, the company set a Feb. 22 deadline for final bids.
At that time, SafeNet received an offer from Vector Capital, which first approached it in August, for $28 per share, a second offer for $27 per share from an unidentified party, and a third offer to buy only the company's classified government business for $165 million.
SafeNet began negotiating with both Vector Capital and the party that made the $27 per share offer. Vector Capital then raised its bid to $28.75. The unidentified bidder, whose offer was contingent on 2004 and 2005 audited financial statements, did not raise its offer, according to the SEC filings.
SafeNet's directors unanimously approved the Vector Capital acquisition and agreed to tender their shares. They are recommending shareholders do the same.
The agreement requires that shareholders tender 78 percent of SafeNet's shares. If SafeNet were to become current in its financial reports, only a majority would be required.
SafeNet formally began its tender offer yesterday in SEC filings, giving shareholders an April 6 deadline to tender their shares. That deadline could, however, be extended until Dec. 7 under certain circumstances, the SEC documents said.
The SEC documents filed yesterday also give a glimpse into SafeNet's recent financials, though the numbers are preliminary and do not meet generally accepted accounting principals.
SafeNet had a net loss of $14.1 million with sales of $295.2 million in 2006, according to the filing. The company is expecting revenue of $330 million and earnings before interest, taxes, depreciation and amortization of $64.7 million, according to the filing.
Shares of SafeNet closed yesterday at $28.46, up 3 cents.