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Big shareholder of Cogent opposes buyout terms

August 31, 2010 |  9:53 pm

The third-largest shareholder of Cogent Inc. says it will “vigorously oppose” the Pasadena tech company’s agreement to sell itself to conglomerate 3M Co., saying the bid price significantly undervalues the business.

Atlanta-based money manager Pointer Capital said in a letter to Cogent’s board on Tuesday that it believed the firm was worth at least $15 a share, or 43% more than the $10.50-a-share 3M buyout that Cogent accepted on Monday.

Pointer and its affiliate, Atlantic Investments, said they own a combined three million shares of Cogent, which they said they’ve accumulated over the last year.

Cogent is a 20-year-old company that develops and sells biometric security systems that identify fingerprints, faces and eyeballs. It was founded by Chinese emigrant Ming Hsieh, who is the company’s chief executive and direct owner of nearly 39% of the stock.

As noted in this post on Monday, the $943-million takeover offer was viewed by some Wall Street analysts as a “steal” for 3M. Indeed, Cogent stock jumped $2.18 to close at $11.09 on Monday, nearly 6% above 3M’s offer, in a sign that some investors and traders either expected a rival bidder to emerge or that 3M would ultimately raise its price.

On Tuesday the shares slipped 9 cents to close at $11, still above the 3M bid, before Pointer disclosed its letter.

Noting Cogent management’s recent upbeat views of the company’s long-term prospects, and the cash flow Cogent is expected to generate just over the next 18 months, Pointer contends that 3M’s offer puts a valuation on the business that is “simply too cheap.”

From the letter signed by Pointer partners Brent D. Cann and Malon W. Courts:

We are most concerned with our impression of how an opaque [sale] process has been conducted. At no point did the company publicly disclose it was evaluating strategic alternatives. If 3M approached the company to consummate a transaction, what measures did the board take to ensure that this was a fair offer? In addition, why is the company in such a hurry to close this transaction?

Pointer said it believes Cogent should conduct “a formalized process for the sale of the company to ensure maximum fair value is obtained for all shareholders.”

There was no reaction Tuesday from Cogent or 3M.

-- Tom Petruno