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Tech firm Cogent rejected suitor that might have paid more than 3M

September 14, 2010 |  6:00 am

Cogent Inc., the Pasadena technology company that is selling itself to conglomerate 3M Co. for less than what some Cogent shareholders say is fair, had an "indication of interest" last month from another suitor at a price higher than 3M's bid.

The rival suitor's possible offer is disclosed in the latest filing Cogent made with the Securities and Exchange Commission related to the takeover deal with 3M, which agreed on Aug. 30 to buy Cogent for $10.50 a share, or $943 million. 3M launched its cash tender offer for the company last week.

The revelation by Cogent may further agitate shareholders who have called the 3M offer inadequate. Cogent's third-largest shareholder, Atlanta-based money manager Pointer Capital, said on Aug. 31 that it would oppose the 3M deal because it believed that Cogent was worth at least $15 a share.

Even though 3M's tender offer already is underway at $10.50 a share, Cogent stock continues to trade above that price. The shares closed Monday at $10.86, off 7 cents for the day. That indicates that many investors and traders remain willing to bet that 3M will boost its offer or that a higher bid will emerge.

Ming "There is a lot of intrigue in this," said Brian Gesuale, an analyst who covers Cogent for brokerage Raymond James.

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.

In the SEC filing, Cogent said the "non-binding indication of interest" from an unnamed suitor was in the $11-to-$12-a-share range.

But Cogent said its board opted to go with 3M's formal offer at $10.50 a share in part because of doubts over the rival suitor's ability to pull off a deal.

The rival "had been expressing an interest in pursuing a strategic transaction for over a year, but had not completed an in-depth diligence investigation of Cogent, delivered a definitive proposal or addressed sufficiently the regulatory risks relating to a strategic transaction between [itself] and Cogent, despite time and notice of the need for action," Cogent said in the filing.

Hsieh became an instant billionaire when he took Cogent public in September 2004 and the stock quickly surged to nearly $36. Although the company has been consistently profitable and its security systems have been purchased by the U.S. Department of Homeland Security and other government units, Cogent's growth has been uneven in recent years and its shares have deflated. Some analysts say Hsieh grew tired of dealing with the pressures of a shareholder-owned business, despite the company's solid long-term prospects.

The filing indicates that the 54-year-old Hsieh has been looking to sell Cogent since early 2008. The company's investment banker, Credit Suisse, approached "27 potential parties" about a deal, including 3M, the filing says. But only a handful of companies appeared interested, according to Cogent.

By September 2008 3M and Cogent were in early discussions about a possible takeover, but later that month the talks were scuttled "due to the dramatic deterioration of global economic conditions," according to the filing. That was the month that brokerage Lehman Bros. collapsed, triggering the global credit-market crash.

For 3M, the second time around proved to be the charm: By May of this year the St. Paul, Minn. giant was back in the hunt and expressed an interest in pursuing a deal with Cogent, the filing says. 3M made its $10.50-a-share offer on Aug. 11 and Cogent's board accepted the terms on Aug. 29.

3M CEO George Buckley has shown no willingness to budge on the price, despite opposition from Pointer and other big Cogent shareholders.

"The stock was trading in the $8 range, we offered in the mid-$10 range, I think it was a fair premium,” Buckley said on Sept. 3.

But Raymond James' Gesuale noted that the market price of Cogent's shares indicates strong investor belief that the final takeover price will be higher than $10.50.

"The fat lady's not singing yet," he said.

-- Tom Petruno

Photo: Cogent CEO Ming Hsieh in 2008. Credit: Gary Friedman / Los Angeles Times