Apple wants you to ask Siri question. But Apple isn't too keen on anyone asking questions about AuthenTec.
Apple agreed to buy AuthenTec, the fingerprint sensor technology company, last week for $356 million in cash, or $8 a share. AuthenTec is a publicly traded company on the Nasdaq, and such announcements are typically accompanied by a news release as well as an analyst call with the buyer and the target.
But Apple appears to value its privacy, and this deal was announced as quietly as possible.
AuthenTec did not issue a news release nor do anything else to publicize the deal. If you go to AuthenTec's Web site, it does not mention the Apple acquisition. That's the case despite the company's penchant to issue releases for even the most minor action, like joining “ARM® Connected Community, the industry's largest ecosystem of ARM technology-based products and services,†whatever that is.
Instead, AuthenTec merely made the necessary regulatory fi ling with the Securities and Exchange Commission.
Though AuthenTec said almost nothing publicly to its shareholders, the company did file an investor Q.&A. with the S.E.C. for those investors intrepid enough to look.
It's unintentionally hilarious. Take these three items:
Why is Apple buying AuthenTec?
AuthenTec cannot comment on Apple's intentions.
What will happen to AuthenTec's existing businesses?
Apple will implement its plans for AuthenTec's businesses after the transaction closes.
What will happen to AuthenTec's employees?
AuthenTec cannot speak to Apple's intentions. In any event, we do not expect any public comment on future plans with respect to employees.
It may be the most unhelpful acquisition Q.&A. of all time, bound only to stir unease in AuthenTec's employees and customers.
But in fairness to AuthenTec it doesn't appear to have had a choice.
In the acquisition agreement signed with Apple, AuthenTec agreed that it would not “issue or cause publication of any press release or other public announcement (including any filing with the S.E.C.) or make any other public statement (including answering questions from reporters or analysts) with respect to the†acquisition without Apple's consent. This prohibition was likely to have been demanded by Apple as part of the negotiation.
Not surprisingly given this requirement, Apple seems content to say nothing, as it did not comment on or issue a news release for the transaction.
This is not the only odd thing about this deal.
In connection with the acquisition, Apple has entered into what appears to be a crown jewel lock-up with respect to AuthenTec's assets. A crown jewel lock-up is an '80s style mechanism intended to prevent a third party from trumping a takeover offer.
The original buyer will get an option or other right to purchase crucial assets of the target, sometimes at a sweetheart price. Other bidders will then be deterred from bidding because they will not be able to buy the target with its best assets intact.
Crown jewel lock-ups have been out of favor since the famous Delaware legal cases involving Macmillian's proposed acquisition by Kohlberg Kravis Roberts and Holly Farms proposed acquisition by Conagra. In each of these cases, such provisions were struck down.
The courts reasoned that the the lock-ups would unduly end the ability of a third party to acquire the company before the target had fully explored other bids. In the Macmillian case, the court stated that at a minimum, a board needs to see if there are alternative bids before it agrees to a crown jewel lock-up.
In the current example, AuthenTec has agreed to grant Apple the option to acquire a nonexclusive license mainly related to sensors that can be used in Apple products. The price of this option is $2 0 million.
Apple can then exercise this option within 270 days by paying an additional $90 million for the hardware rights and $25 million for the software rights. Apple has also entered into a development agreement with AuthenTec for $7.5 million for product development. Any intellectual property arising from this project will be owned by Apple. All of these rights are exercisable by Apple, regardless of whether the takeover goes through.
The likely effect of this crown jewel lock-up is to severely discourage any third party from trying to outbid Apple for AuthenTec. A third party would find that AuthenTec's intellectual property had suddenly been turned over to Apple. Since Apple is such a dominant force in the electronics world and would no longer need to license or buy AuthenTec's products, it would make any acquisition less worthwhile.
As if that weren't enough, AuthenTec would also have to pay Apple a $10.95 million termination fee if it is acquired by another company. This amount is relatively lower than the typical 3 percent of a deal's value for termination fees, but in this case it seems to be piling on. Apple also got officers and directors of AuthenTec holding 3.4 percent of the company's stock to sign an agreement to vote in favor of the deal.
It remains to be seen whether AuthenTec shopped itself to other acquirers, but normally this type of crown jewel lock-up would face serious scrutiny in the Delaware courts.
Still, it is doubtful the deal will be disrupted. The Delaware courts are not likely to strictly scrutinize this lock-up without another bidder on the scene.
But none is likely to emerge. Who would have the gumption to risk a bidding war with a company that has $117 billion in cash?
All in all, it shows that when Apple makes deals, it does things in anything but a normal manner. Apple appears to value silence, but also doesn't seem afraid to throw its weight around.
Why di d Apple even feel the need to go so far? Perhaps because it can.
For those watching for a big Apple acquisition, expect the company to bargain hard and in perhaps the most aggressive manner.
Steven M. Davidoff, writing as The Deal Professor, is a commentator for DealBook on the world of mergers and acquisitions.
