UPDATE 5-3M to pay $943 mln for biometric systems maker

* To pay $10.50/share for Cogent Inc

* Price is a nearly 18 pct premium

* Cogent shares jump to $11.09, above offer price

* Analysts see potential for other bidders
(Adds that L-1 has no comment on sale)

By Nick Zieminski

NEW YORK, Aug 30 (BestGrowthStock) – Diversified U.S. manufacturer
3M Co (MMM.N: ) said it would buy Cogent Inc (COGT.O: ) for $943
million, paying a nearly 18 percent premium for the maker of
identification systems used to screen travelers at border
crossings.

3M said it would pay $10.50 a share. Cogent shares jumped
24.4 percent to $11.09 in unusually heavy trading, topping the
offer, suggesting the market considers a rival bid possible. 3M
shares fell $1.67 to $79.65 on the New York Stock Exchange.

Cogent makes automated fingerprint and palmprint
identification systems — called biometrics — that allow its
customers to capture fingerprint and palm print images
electronically, encode prints into searchable files, and
compare sets of prints.

Analyst Josephine Millward of Benchmark Co LLC said the
deal values Cogent at about 6.6 times estimated 2011 earnings
before special items, whereas other deals in the homeland
security and defense sectors have produced multiples of at
least 8. She said other bidders may emerge.

Potential rival bidders include information technology
services companies and systems integrators such as Danaher Corp
(DHR.N: ) and Computer Sciences Corp (CSC.N: ), as well as Lockheed
Martin Corp (LMT.N: ) and Northrop Grumman Corp (NOC.N: ), Millward
said in a research note. She rates Cogent shares “buy,” with a
$14 price target.

TARGETING LAW ENFORCERS

3M makes systems for creating and validating documents like
passports, as well as technology used at national borders. It
said the deal will help it expand in the market for law
enforcement systems, and estimates the $4 billion biometric
market will grow by 20 percent a year.

3M Chief Executive George Buckley said last week that the
company could spend $2 billion on acquisitions this year,
double its previous estimate. [ID:nTOE67M07U]

About half of Cogent’s revenue comes from the U.S.
Department of Homeland Security, so bids by foreign firms such
as France’s Safran (SAF.PA: ) and Japan’s NEC Corp (6701.T: ) are
not likely, said analyst Frederick Ziegel of Blue Water Capital
Markets LLC.

“It’s very heavily government business and it’s very
heavily big deals. That is a recipe for very volatile financial
results,” Ziegel said. He added that biometrics companies are
typically valued at three to four times 2011 sales, and the
Cogent deal falls within that range.

Biometrics has become a widely accepted technology around
the world, although privacy concerns have posed a barrier to
its adoption in some markets. The technology is moving toward
mobile applications, such as handheld scanners, for uses like
law enforcement and voting.

3M said the deal was worth $943 million, which takes into
account the value of stock options and other items, a 3M
spokeswoman said.

Net of cash acquired in the deal, 3M said it was paying
$430 million for Cogent. The transaction is expected to close
during the fourth quarter.

Cogent, based in Pasadena, California, had about $130
million in revenue in 2009. 3M expects the purchase to dilute
its earnings by 9 cents to 10 cents per share over the first 12
months after closing.

Excluding purchase accounting adjustments and integration
costs, its expects the deal to add to earnings by 1 cent to 2
cents per share.

J.P. Morgan advised 3M, while Credit Suisse and Goldman
Sachs acted as financial advisers to Cogent.

L-1 DEAL EXPECTED

A series of deals for mid-tier defense companies has lifted
valuations of firms that provide the niche surveillance and
intelligence technologies.

It is an area where large defense contractors like Boeing
Co (BA.N: ) have been stepping up investment. As the United
States strengthens its focus on national security, Boeing peers
Lockheed Martin, Northrop Grumman, General Dynamics (GD.N: ),
Goodrich Corp (GR.N: ) and BAE Systems Plc (BAES.L: ) are eyeing a
bigger slice of the surveillance and intelligence market.
[ID:nSGE6670IH]

Cogent rival L-1 Identity Solutions (ID.N: ), a maker of
fingerprint and iris recognition devices, said last week it was
close to announcing a deal, which analysts peg at around $1
billion. L-1 put itself up for sale in March.

L-1 shares rose 1.2 percent to close at $9.03.

France’s Safran could end up winning L-1, said Ziegel of
Blue Water. “Safran has taken a couple of deals from Cogent,
and maybe that’s partly driving this” deal with 3M, he said.

Millward, of Benchmark Co, citing industry sources, said
Safran could announce the acquisition of L-1 as soon as
Tuesday, for about $13 per share.

A spokeswoman for Safran said the company does not comment
on speculation. L-1 declined to comment.
(Additional reporting by Michael Erman in New York and Bijoy
Anandoth Koyitty in Bangalore; Editing by Dave Zimmerman, John
Wallace and Richard Chang)

UPDATE 5-3M to pay $943 mln for biometric systems maker