June 23, 2008 / 7:05 AM / 11 years ago

UPDATE 2-Safran makes $300 mln unsolicited bid for Digimarc unit

(Recasts, changes dateline, adds analyst’s comments, updates share movement)

By Biswarup Gooptu

BANGALORE, June 23 (Reuters) - French aero engine and telecom equipment maker Safran (SAF.PA) made an unsolicited bid for the secure ID business of Digimarc Corp (DMRC.O) for $300 million in cash, topping an offer made by L-1 Identity Solutions Inc ID.N in March.

In a statement issued by Digimarc, the company said its board has determined that Safran’s proposal “could reasonably be expected to lead to a superior proposal.”

Under the deal with L-1, Digimarc cannot enter into a different transaction unless its board declares a competing proposal a “superior proposal” and provides L-1 with a negotiation right for five business days.

L-1 had agreed to acquire Digimarc’s secure ID business for about $250 million in a cash and stock deal, which also cleared a key anti-trust hurdle Monday.

In a note to clients, Lazard Capital Markets analyst Nick Andrewes raised his price target on the Digimarc stock by $2 to $15 and said he viewed Safran’s bid as “superior.”

“We estimate that L-1’s bid is currently worth roughly $263 million, $37 million less than Safran’s bid. Given that about half of L-1’s bid is in stock, there is some downside risk to the bid’s value,” he said.

Stanford Group Co analyst Jeremy Grant said that the timing of Safran offer was “surprising,” but a bidding war would be good for Digimarc’s shareholders.

“What was most unexpected about the offer, was the timing of it,” Grant said. “The fact that Safran waited until L-1 had the Hart-Scott-Rodino antitrust approval, before making the offer, was a little bit unusual, since they’re jumping in when one of the bigger barriers to the original deal has been removed.”

Leaving aside the timing of the Safran bid, Grant was not surprised by a rival bid for Digimarc’s secure ID business.

Grant said he believed Digimarc’s drivers license business in the United States has been one of the more “undervalued” assets within the broader identity solution space.

Grant also pointed out that Digimarc’s unit has become an acquisition target, particularly with the uptake in the drivers license spending that is expected from the Real ID Act implementation across all states.

The Real ID Act was passed by U.S. Congress three years ago to establish minimum standards for state-issued ID cards, like drivers licenses.

Shares of Beaverton, Oregon-based Digimarc jumped 14 percent to touch a four-year high of $13.51 earlier in the day. They were trading up at $13.02 in the afternoon trade on Nasdaq. (Additional reporting by Dominique Vidalon in Paris; editing by Anil D’Silva)

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