Apple Was In a Hurry to Buy AuthenTec
A recent filing of a PREM14A proxy statement with the SEC reveals that Apple was in a hurry to acquire AuthenTec or license its technology, reports TNW.
AuthenTec is a provider of mobile and network security solutions, including fingerprint scanners. It was acquired in July by Apple for $8 a share which calculates to $356 million.
Here's a brief look at the background of the transaction:
● Late in 2011 and early in 2012, the Company discussed new technology with several leading consumer electronics companies to gauge potential market interest for such a product. For a number of reasons, including cost, Apple was the only potential customer that expressed substantive interest in pursuing further development of and a commercial agreement with respect to this technology.
● Beginning late in February 2012, management of the Company, including Larry Ciaccia, Chief Executive Officer, Phil Calamia, Chief Financial Officer, and Fred Jorgenson, Vice President and General Counsel, met with representatives of Apple to discuss and negotiate the terms of a potential commercial agreement between the Company and Apple relating to the development of this new technology. These discussions continued through March and April 2012 in several meetings held at the offices of Apple in Cupertino, California, as well as telephonically.
● On March 9, Apple and the Company entered into an interim agreement to establish the terms and conditions under which the Company and Apple would work to develop the new technology during the period in which the parties were negotiating the definitive terms for a commercial agreement.
● On May 1, Messrs. Ciaccia and Jorgenson met with representatives of Apple in Cupertino, California to continue negotiations on a commercial agreement between the parties. During the meetings, representatives of Apple stated that Apple had decided to propose to acquire the Company in lieu of entering into a standalone commercial agreement. Representatives of Apple informed Mr. Ciaccia that they were authorized to offer a price of $7.00 per share, which represented an approximately 115% premium over the closing price of the Company's common stock as of April 30, 2012, subject to the satisfactory completion of due diligence, the negotiation of a definitive merger agreement and final approval of the transaction by Apple's senior executives.
● Representatives of Apple also informed Messrs. Ciaccia and Jorgenson that Apple would require an arms-length commercial agreement in addition to a definitive merger agreement to ensure that the development of and access to the new technology would continue regardless of whether the proposed transaction was completed. Representatives of Apple confirmed that the acquisition was the only path that Apple was willing to pursue and that Apple would no longer continue discussions regarding a commercial agreement outside of the acquisition context. Mr. Ciaccia responded that he would need to discuss the matter with the Company's board, but that he did not believe that $7.00 per share was a sufficient price.
● During the afternoon of May 2, Messrs. Ciaccia, Calamia and Jorgenson, together with representatives of Piper Jaffray met with representatives of Apple to discuss further Apple's acquisition proposal for the Company. The Company had previously retained Piper Jaffray in 2011 to serve as the Company's financial advisor to assist the Company in its identification and evaluation of various financing and acquisition transactions. At the meeting, a representative of Apple noted Apple's view that $7.00 per share represented a price that other potential buyers would be unwilling to pay. The representatives of Apple also stated that the Company should view the price as very attractive in light of the Company's growth prospects, noting specifically the challenges that the Company would face in profitably developing the new technology for other large consumer electronics manufacturers, which have dozens of different smartphone platforms, in contrast to Apple's unique narrow product platform, which allows for unity of design in component parts across significant unit volumes. Representatives of Apple then outlined a proposed transaction structure and the process and timeline for negotiating the transaction. Representatives of Apple also noted Apple's desire to proceed quickly due to its product plans and ongoing engineering efforts. As a result of its focus on timing, Apple's representatives also informed the Company that Apple would not participate in an auction process and would rescind its proposal if the board decided to solicit alternative acquisition proposals for the Company. Mr. Ciaccia responded that he would convene a board meeting to discuss the proposal and would revert to Apple with the board's position on Apple's proposal.
● On May 8, Messrs. Ciaccia, Calamia and Jorgenson, together with representatives of Piper Jaffray, met with representatives from Apple to discuss Apple's proposed purchase price of $7.00 per share and the desire of the board that the Company have the ability to solicit alternative acquisition proposals from third parties, either before signing a definitive agreement or as part of a post-signing "go-shop" arrangement. At this meeting, Mr. Ciaccia countered Apple's proposed purchase price with a purchase price of $9.00 per share.
● Following this meeting, also on May 8, a representative of Apple called Mr. Ciaccia and stated that he was authorized to make a final offer of $8.00 per share, which represented an approximately 116% premium over the closing price of the Company's common stock as of May 7. The representative of Apple stated that although Apple would not agree to a post-signing "go-shop" provision, Apple would agree to customary provisions in the merger agreement that would allow the Company to respond to unsolicited acquisition proposals. At the Company's request, representatives of Piper Jaffray subsequently communicated to Apple that such an approach would be acceptable to the Company if the relevant provisions of the merger agreement allowed the Company to accept such an unsolicited acquisition proposal on terms more favorable to the Company's stockholders than Apple's proposal. Representatives of Piper Jaffray also informed Apple that the Company would require Apple to assume certain antitrust regulatory risks in connection with the transaction. As part of these discussions, the representative of Apple reconfirmed that Apple would require a commercial agreement with the Company to ensure that, regardless of whether the transaction was completed, the current joint development efforts with respect to the technology would continue on schedule.
● On May 17, following the expiration of the interim agreement, the parties entered into a second interim agreement to govern the continuing development work that the Company was performing for Apple.
● On May 30, Mr. Ciaccia met with representatives of Apple to discuss the status of the transaction. At this meeting, the representatives of Apple informed Mr. Ciaccia that Apple was concerned about certain matters that it had discovered in its due diligence and noted Apple's unwillingness to proceed with the proposed transaction absent a satisfactory resolution of these matters.
● On June 1, at a special meeting of the board, Mr. Ciaccia informed the board that Apple had ceased discussions regarding the proposed transaction as a result of the due diligence matters it had identified. Also on June 1, a representative of Apple called Mr. Ciaccia to express Apple's interest in pursuing a commercial agreement between the parties in lieu of the proposed acquisition notwithstanding Apple's unresolved due diligence matters.
● From June 1 to July 3, the parties continued to design and develop the technology for Apple and continued to negotiate to narrow the significant differences between the parties regarding acceptable terms for a commercial agreement. During this period, the Company also attempted to address the due diligence matters identified by Apple.
● On June 28, Mr. Ciaccia called a representative of Apple to inform him that the Company believed it had resolved the due diligence matters identified by Apple. The representative of Apple told Mr. Ciaccia that he would discuss the resolution of the matters internally.
● On July 3, a representative of Apple called Mr. Ciaccia and informed him that the due diligence matters identified by Apple had been resolved satisfactorily by the Company and Apple again wanted to pursue the proposed acquisition of the Company at $8.00 per share in lieu of the standalone commercial agreement, which Apple was no longer willing to pursue outside of the acquisition context. Mr. Ciaccia told the representative of Apple that he would convene a board meeting to discuss Apple's proposal.
● Apple emphasized its requirement that the development of the technology would not be interrupted regardless of whether the proposed transaction was completed. On the evening of July 19, the parties agreed to the key terms of the IP agreement and the development agreement.
● After further discussion, the board unanimously determined and declared that the merger agreement, the merger and the other transactions contemplated by the merger agreement are fair to, advisable and in the best interests of the Company and its stockholders, directed that the merger agreement be submitted to the Company's stockholders for adoption and recommended that the Company's stockholders vote in favor of the adoption of the merger agreement. The board also unanimously approved the IP agreement and the development agreement.
Following the approval of the merger agreement by the Company, Apple and Merger Sub executed and delivered the merger agreement, the IP agreement and the development agreement, and certain of the Company's directors and executive officers executed and delivered the voting agreements. The Company's executive officers also entered into the retention agreements with Apple. The Company then filed a Current Report on Form 8-K announcing the execution of the merger agreement and other agreements on the morning of July 27.
Notably, Apple repeated insisted that AuthenTec keep working on developing its technology for Apple despite several stumbling blocks in the negotiation process. This appears to indicate it was planning to utilize AuthenTec technology in its products in the near future.
The IP agreement for which Apple paid $20 million, gives Apple the right to acquire non-exclusive licenses to hardware technology, software technology and patents for commercialization of 2D fingerprint sensors for use in or with Apple products. Apple can choose to acquire either the non-exclusive hardware technology and patent rights ($90.0 million), the non-exclusive software technology and patent rights ($25.0 million) or both.
The development agreement says that Authentec will perform non-recurring engineering services for Apple for product development and will receive up to $7.5 million for performance of the development services. The $7.5 million is payable by Apple to the Company in up to 5 installments of $1.5 million each, based on specified milestones and dates. New intellectual property resulting from the development services will be owned by Apple.
Some are suggesting that Apple could be adding fingerprint security to its new Passbook application for iOS 6. We'll have to wait and see!
You can read more about this at the link below...
Read More [via TNW]