Apple buys mobile security firm AuthenTec for $356M

Aug 08, 2012, 3:49 PM EDT

* Apple to pay $8 for each AuthenTec share

* Deal represents 58 pct premium to AuthenTec close

* AuthenTec shares suggest investors expecting rival bid (New throughout, adds background and details)

By Poornima Gupta and Sinead Carew

July 27 (Reuters) - Apple Inc will buy fingerprintsensor technology developer AuthenTec Inc for about$356 million, striking a deal that could put its iPhone at thecenter of the emerging mobile payments market.

Shares of AuthenTec, whose sensor chips can be used inpersonal computers and mobile devices, closed above the $8 pershare that Apple agreed to pay for the company, suggesting someinvestors expect a rival bid.

Apple is paying a 58 percent premium for the Melbourne,Florida-based AuthenTec, which counts Korean mobile device maker-- and fierce Apple rival -- Samsung Electronics Co Ltd among its biggest customers.

AuthenTec is one of the very few public companies that Applehas acquired. The world's most valuable technology companyrarely does acquisitions and tends to buy mostly startups whenlooking for cutting-edge technology.

AuthenTec, spun off from Harris Semiconductor in 1998 andwhich went public in 2007, provides mobile security softwarelicenses to companies like Samsung, and fingerprint sensortechnology to computer makers such as Hewlett-Packard Co and Dell Inc.

Its fingerprint technology, used in mobile phones in Japanfor authentication of mobile payments, could help Apple bringthose services to markets such as the United States, wheremobile-wallet services have been slow to catch on.

Shares of AuthenTec surged $3.35, or 66 percent, to $8.42 onNasdaq. Apple stock closed up $10.28 to $585.16.

BSW Financial analyst Hameed Khorsand said the offer pricewas not high enough to keep competing bids at bay, and theCalifornia mobile giant is validating AuthenTec's technologywith its interest.

"There could be other parties interested in taking a seriouslook at purchasing AuthenTec," he said. "If not for thetechnology AuthenTec owns, then for forcing Apple to pay up."

Analysts see Google Inc and Samsung as potentialrival bidders. The terms of the deal do not permit AuthenTec toshop for offers, but does allow it to consider unsolicited bids.

Piper Jaffray advised in the deal. The company has agreed toinform Apple if it receives any inquiries or offers. Apple hasto pay a termination fee of $20 million in case the deal doesnot close because of antitrust issues. If AuthenTec goes for ahigher, rival bid, it will have to pay Apple $10.95 million.



AuthenTec, which also counts Lenovo Group Ltd andFujitsu Ltd as customers, has annual revenue of about$70 million and has itself been acquiring companies that wouldhelp in building a host of mobile security products.

"In the past 5 years, the growth of iPhone and Androidsmartphones has made mobile data security essential, not just a'nice-to-have' feature," said Ben Yu, Managing Director ofSierra Ventures, one of the early investors in AuthenTec."People have their whole lives on the phones."

AuthenTec's embedded fingerprint scanners and otheridentity-related software is particularly useful now that NearField Communications, or NFC-enabled, phones have begun toappear in the market, he added.

At the Black Hat conference in Las Vegas this week, securityexperts demonstrated ways to attack Android smartphones usingNFC. The technology allows users to share photos with friends,make payments or exchange data simply by bringing phones withina few centimeters of similarly equipped devices, such as anotherphone or a payment terminal.

An Apple spokesman declined to comment on how Apple plans touse AuthenTec's technology.

Apple has also acquired the right to pay the company tolicense certain patents totaling as much as $115 million. Itwill also pay AuthenTec $7.5 million for some productdevelopment work.

The exact nature of the work was not disclosed but theagreement filed with regulators hinted at the development of "a2D fingerprint sensor for Apple that is suitable for use in anApple product."

Some analysts expect the next version of the iPhone toinclude some form of mobile payments technology.

Apple will debut in the fall its "Passbook" software, amobile app for storing tickets, coupons and loyalty cards.Passbook marks Apple's entry in the mobile payment space, anarea that requires top-notch embedded security.

While companies such as Google already have mobile paymentsofferings, such services are not widely used in the UnitedStates and have been dogged by security concerns.

BGC Partners analyst Colin Gillis said AuthenTec technologycould potentially also help Apple combat problems such as theftof its more portable products such as iPhones.

"If they could have a way where they could tie the phone toa user more tightly, that would make sense for them," he said.

He described the price tag for AuthenTec as a drop in thebucket of Apple's cash pile of $117.2 billion, and noted thecompany had not been as acquisitive as other technology firms.

"We'll see if it's a one-off or if Tim Cook will start tolevel his cash balance and acquire talent," Gillis said,referring to Apple's chief executive. (Additional reporting by Himank Sharma in Bangalore; Editing byTed Kerr, Bernadette Baum, Steve Orlofsky and David Gregorio)