Private equity firm to acquire SafeNet

Vector to pay $634 million for Harford firm hurt by option woes

March 06, 2007|By Stacey Hirsh and Jamie Smith Hopkins | Stacey Hirsh and Jamie Smith Hopkins,SUN REPORTERS

SafeNet Inc., the Harford County technology company under federal investigation for its stock option grants, said yesterday that it has agreed to be acquired by a San Francisco private equity firm for about $634 million.

Vector Capital will acquire all of SafeNet's outstanding shares for $28.75 per share - a 12 percent premium over the company's average closing share price for the 30 trading days that ended Friday.

Shares of SafeNet closed up 5 cents yesterday at $28.35.

A sale would end the Belcamp company's tenure in the public arena, where its shares have been subject to the ups and downs of the volatile technology sector.

But it was the announcement in May that its options grants were under federal scrutiny that threw the company into turmoil, sending its shares plunging 22 percent in a single day.

The probe sparked an internal investigation that's still under way and forced the ouster of its top two executives. The company's shares also are under threat of de-listing by Nasdaq because of SafeNet's delays in issuing financial reports.

Going private will help the company, continue to build its business, representatives of both sides said yesterday. Safenet makes a range of encryption technologies to protect communications and sensitive data for government and the private sector.

"The challenges of being a public company today can sometimes inhibit growth in companies like SafeNet," said David Fishman, a principal at Vector Capital, in a press release.

"We believe SafeNet will significantly benefit from being a private company, and will be in a better position to help achieve its goal of providing leading security solutions to both its government and commercial customers."

Vector Capital declined further comment. SafeNet is planning to remain headquartered in Belcamp, and there are no immediate plans to cut jobs as a result of the acquisition, said Donna St. Germain, a company spokeswoman.

The company employs 1,100 worldwide, including about 200 at its headquarters.

SafeNet's directors unanimously approved the acquisition and agreed to tender their shares. They are recommending shareholders do the same, according to a company press release.

The deal, financed through equity and debt, hinges on the tendering of 78 percent of SafeNet's shares. If that threshold is reached, the deal is expected to close in the second quarter.

If SafeNet becomes current in its SEC filings, the company will need only a majority of its shares tendered for the deal to go through, according to the press release.

SafeNet said in September that it would have to revise financial statements from 2000 through March 31, 2006, because of improper accounting for options grants.

The tender price is a 57 percent premium over SafeNet's closing price Oct. 2, when the company began seeking "strategic alternatives."

But analysts said yesterday the price seemed low, and one analyst believes the 78 percent threshold is not likely to be met.

"I will be very surprised if they're able to get 78 percent of the shares to tender," said Todd C. Weller, an analyst for Stifel Nicolaus in Baltimore who does not own shares of SafeNet.

"If you look at comparable valuations [of mergers and acquisitions] and you look at the quality of company and where these things are tending to be valued at, and you categorize SafeNet along those lines, it just feels like this is too cheap."

In the press release, SafeNet said that Vector presented the best deal to the company, which began seeking "strategic alternatives" in October.

"Over the past five months, our board of directors engaged in an extremely thorough review of all strategic options available ... including a broad solicitation process that resulted in significant competitive interest in our company," said Walter W. Straub, SafeNet's chairman and chief executive, in a statement.

"Based on this comprehensive process, the board determined that being acquired by Vector Capital and its partners represents a compelling opportunity that is in the best interest of our shareholders, customers and employees."

The company declined to comment on what other offers it entertained. That information will be disclosed in an SEC document expected to be filed next week, said Ian Dix, SafeNet's chief marketing officer.

SafeNet is one of dozens of publicly traded companies that have come under federal investigation for possible illegal backdating of option grants.

Backdating involves the awarding of options with an effective date other than their grant date to take advantage of previous declines in the stock. The effect is to make the option potentially more valuable. SafetNet's internal probe into the option grants is being undertaken by a special committee, aided by counsel and forensic accountants.

The company announced in September that it would have to revise financial statements from 2000 through March 31, 2006, because the accounting of some options grants used "incorrect measurement dates under applicable accounting rules in effect at the time."

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