3M agrees to buy biometrics maker Cogent for $950m

Shareholder sues, however, saying the bid is too low; analysts agree
Thursday, September 2, 2010

ST. PAUL, Minn.—3M, the $23 billion global manufacturer based here, has entered into an agreement to buy all the shares of public biometrics manufacturer Cogent for roughly $950 million. Often known as Cogent Systems, the company provides finger, palm, face and iris biometric systems primarily to governments and law enforcement agencies. Its largest customer is the Department of Homeland Security.

Cogent will be added, should the deal go through, to 3M’s substantial Security Systems division, said company spokesperson Donna Fleming Runyon, in an interview with Security Systems News. 3M did roughly $1.5 billion in security and safety revenue in 2009, mostly dealing in passports and badge printing. 3M does have some biometric capabilities already, said Runyon, especially in its passports. However, “Adding Cogent Systems’ products to our business strengthens our product portfolio and services in high security credential issuance and authentication systems and positions 3M’s business in law enforcement applications,” said Mike Delkoski, vice president and general manager, 3M Security Systems, in a statement. “It also expands our reach into access control and other commercial ID and authentication applications.”

Cogent did roughly $130 million in revenue in 2009, but is trending toward less than $100 million in revenue in 2010. The company employs roughly 500 people in its Pasadena, Calif., headquarters, as well as offices in Ohio, Virginia, Austria, Canada, China, and the United Kingdom. Ming Hsieh, Cogent’s founder and CEO, will remain with 3M going forward.

Cogent’s primary product is its Automated Fingerprint/Palmprint Identification System, or AFIS, which enables customers to capture fingerprint and palm print images electronically, encode prints into searchable files, and accurately compare a set of fingerprints/palm prints to a database containing potentially millions of prints in seconds.

As of this writing, 3M still has to purchase the shares not owned by Hsieh, who has nearly 40 percent of the company. Reuters is reporting that one investor, St Nevan US Limited, has sued the 3M board, arguing that the bid of $10.50 a share is not high enough, though it is roughly 17 percent above the most recent trade at the time of the offer. It would appear that Wall Street agrees with St. Nevan, as Cogent stock pushed past $11 in trading on the days following the announcement of 3M’s intentions.

Further, writing for www.thedeal.com, Lou Whiteman quotes analysts and argues that there may be another bidder for Cogent that could swoop in and offer a higher price. He postulated that government services companies like Northrop Grumman, or commercial security manufacturers like Honeywell, might be interested in 3M’s products, but cited no sources that had expressed interest from any of those companies.

Runyon at 3M said it was too early to speculate about 3M’s intentions for Cogent in terms of branding or exploring the commercial marketplace with its products.