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SEC filing reveals details of Apple's AuthenTec buyout

updated 11:55 am EDT, Thu August 16, 2012

Apple aiming after 'new technology' for products

A PREM14A proxy statement filing with the SEC has exposed some of the details of Apple's acquisition of AuthenTec in late July. Talks between the companies are said to have begun "late in 2011," after AuthenTec approached "several leading consumer electronics companies" about providing a new technology it had created. Apple was the only business to respond; AuthenTec suggests that the main reason was cost.

Negotiations for a commercial deal started toward the end of February 2012, and extended into April. Some of the issues at stake were the amount of IP AuthenTec would grant to Apple, and what the AuthenTec engineering team would have to do to accommodate Apple's plans. No terms could be agreed on; on May 1st Apple instead notified AuthenTec of its intent to acquire the company, for which it was willing to pay $7 per share, a 115 percent premium over the previous day's closing price.

On May 2nd Apple intensified its efforts; the filing indicates that the company thought its offer was "very attractive," since AuthenTec would have trouble trying to develop new technologies for Apple's rivals, which "have dozens of different smartphone platforms, in contrast to Apple's unique narrow product platform, which allows for unity of design in component parts across significant unit volumes."

Apple then put forward a transaction structure and timeline; around this point it explained that it wanted to move quickly on the deal because of "product plans and ongoing engineering efforts." The company in fact threatened to pull its offer if the AuthenTec board of directors tried to solicit bids from any other parties; a board meeting was promised, after which AuthenTec said it would respond to Apple.

The offer is said to have also included a use agreement for AuthenTec patents worth $20 million, which Apple could then license for up to $115 million. Most notable however may some of the wording in the SEC filing: "The IP agreement provides Apple with the right to acquire non-exclusive licenses and certain other rights with respect to hardware technology, software technology and patents of the Company for commercialization of 2D fingerprint sensors for use in or with Apple products," the document reads.

While fingerprint sensors might be an expected reason for buying AuthenTec, it's still unclear how Apple might implement them. One possibility is integration with Passbook, the ticketing/coupon app built into iOS 6. If the app becomes a full-fledged e-wallet tool, fingerprint scanning could be used to ensure that only authorized people can make payments with an iPhone or other iOS device. Alternately or alongside that, a scan could be used unlock iOS or OS X without entering a passcode.

Lending credence to the e-wallet idea is that on May 8th AuthenTec announced that it had launched its "first smart sensor specifically tailored for secure NFC mobile commerce." The sensor registers 192x8 pixels, and incorporates "hybrid fingerprint matching, AES, RSA and SHA encryption blocks, and One Time Password (OTP) generation."

While Apple could conceivably be interested in something else, rumors have had the company interested in NFC technology for some time, even prior to the launch of the iPhone 4S. Whether or not Apple could incorporate NFC-ready AuthenTec sensors into 2012 products is debatable; a new iPhone and a mini iPad are expected to be announced in mid-September, which starting from May would've given Apple a three-month integration window, since at least a month is needed for manufacturing.

May 8th is also when AuthenTec came back with a counter-offer, saying it would need $9 per share. Apple refused to budge past $8, but in the following weeks the deal moved toward being finalized. On May 31st Apple called a temporary halt, insisting that some issues had to be resolved; the focus switched to licensing the technology, and between June 1st and July 3rd the two sides worked to "design and develop the technology for Apple and continued to negotiate to narrow the significant differences between the parties regarding acceptable terms for a commercial agreement."

Between July 17th and July 19th the businesses formulated a plan that would let AuthenTec offer technology to Apple but keep open the possibility of a bid from another company. "Apple emphasized its requirement that the development of the technology would not be interrupted regardless of whether the proposed transaction was completed," the filing adds. "On the evening of July 19, the parties agreed to the key terms of the IP agreement and the development agreement."

The deal was only cemented on the evening of July 26th, just a day before it was made public. Technically AuthenTec is still in a position to accept a rival offer, but that may be unlikely, especially as any bidder would need to pay Apple $10 million. A greater worry may be legal investigations into whether AuthenTec was undervaluing itself at the expense of shareholders.

by MacNN Staff



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