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Judge will rule on investors' appeal to stop 3M takeover of Pasadena-based Cogent

October 1, 2010 |  8:17 pm

A judge will decide by Thursday whether the takeover of Pasadena-based technology firm Cogent Inc. by conglomerate 3M Co. can proceed, after some Cogent shareholders alleged the deal was being railroaded at an unfair price.

In a filing in Delaware Chancery Court that was unsealed this week, dissident shareholders asked for an injunction against 3M’s $943-million takeover, contending that Cogent’s board had breached its fiduciary responsibilities by conducting a “flawed” sale of the company.

The investors got an assist Friday from proxy advisor RiskMetrics Group, which recommended that all shareholders reject the 3M offer as unfair.

Cogent’s publicity-shy founder and CEO, Ming Hsieh, has become the target of shareholder scorn. The dissidents say he is selling the 20-year-old firm too cheap and is giving 3M a sweetheart deal.

Minghsieh “Hsieh and his management team pushed through the deal with 3M to obtain significant financial benefits for themselves,” including retention bonuses, shareholders said in the court filing.

Cogent,  which makes biometric security systems that identify fingerprints, faces and eyeballs, on Aug. 30 announced that it would sell itself to 3M for $10.50 a share in cash. Cogent’s shares quickly rose above 3M’s bid price as some analysts said the offer was too low given Cogent’s growth prospects.

The stock has remained above $10.50, indicating that Wall Street arbitrageurs believe that the case for a higher price is compelling -- even though 3M already has launched its tender offer.

On Friday the stock climbed 19 cents, or 1.8%, to $10.83 in heavy trading.

Three of Cogent’s biggest shareholders -- Pointer Capital, Iridian Asset Management and Corbyn Investment Management – have been battling to have the company put itself back up for sale.

Cogent conceded in a Securities and Exchange Commission filing last month that it had received a "non-binding indication of interest" in the $11-to-$12-a-share range from an unnamed suitor. But the company said its board chose 3M’s offer in part because of doubts over the rival suitor's ability to pull off a deal.

In the Delaware court filing Cogent shareholders identified the rival bidder as Japanese computer giant NEC Corp.

Cogent and 3M have declined to comment on the shareholder mutiny. But in Delaware court on Friday a Cogent lawyer said the NEC bid was too late and would pose antitrust risks, according to Bloomberg News. The dissidents' court filing was unsealed this week at Bloomberg's request.

Cogent's lawyer asked Judge Donald F. Parsons to reject the investors’ plea to put the 3M takeover on ice. Parsons said he would rule before 3M’s tender offer expires on Thursday.

-- Tom Petruno

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