Apple Agrees to Buy AuthenTec for About $350 Million in Cash - Businessweek

Apple Inc. (AAPL) (AAPL) agreed to acquire AuthenTec Inc. (AUTH) (AUTH) for about $350 million, deploying some of its $117.2 billion cash hoard to gain fingerprint-authentication and encryption security technology for the iPad and iPhone.

Apple is paying $8 a share, Melbourne, Florida-based AuthenTec said today in a filing. The transaction represents a premium of 58 percent over AuthenTec’s closing share price yesterday. Under the agreement, Apple also has the right to pay patent licenses totaling as much as $115 million.

AuthenTec makes fingerprint sensors that corporations use to secure access to computer networks, technology that it has been expanding for use on smartphones and tablets. Apple is stepping up efforts to demonstrate its devices are safe from malware and other threats as the iPhone and iPad gain popularity with business customers.

“Authentication is a giant padlock or dead bolt on the front door of an iPhone and iPad,” said Sathvik Krishnamurthy, the president and chief executive officer of Voltage Security Inc., a maker of iPhone and iPad e-mail security technology. A fingerprint is a much safer feature than the current four-digit pin customers use to unlock iPhones and iPads, he said. “It’s a natural addition.”

AuthenTec surged as much as 74 percent to $8.83, for the biggest gain since its 2007 initial public offering, suggesting investors may anticipate a higher bid. The stock rose 64 percent to $8.31 at 2:05 p.m. in New York. Apple increased 1.2 percent to $582.28.

Samsung Bid

Samsung Electronics Co., which less than two weeks ago said it would start using AuthenTec technology in new smartphones and tablets, might consider bidding, said Richard Shannon, an analyst at Craig-Hallum Capital Group, who has a buy rating on AuthenTec’s shares. Like Apple, Samsung may need to upgrade security features on its devices, he said.

“Mobile devices are becoming more Internet and data centric, which means they are no different in some ways than a PC, which exposes them to risks related to security,” said Anil Doradla, an analyst at William Blair & Co. who has a buy rating on Apple’s shares. “By acquiring this company, Apple is basically going after the security portfolio.”

AuthenTec’s other customers include Nokia Oyj (NOK1V), Cisco Systems Inc., and Texas Instruments Inc. (TXN) (TXN), according to the company’s website company.

The deal, which still requires the approval of shareholders and regulators, is expected to close in the third quarter of this year, according to the filing. AuthenTec would pay Apple a breakup fee of $10.95 million if it accepts a superior proposal.

Corporate Security

Adding AuthenTec’s technology will help Apple increase sales to businesses, whose information-technology departments require more security capabilities than consumers using the devices for personal use, said Krishnamurthy.

“If your security policy says you need a 15-character password with numbers and special characters, you’re going to lose a lot of usability with that policy,” Krishnamurthy said. “By doing that with fingerprint authentication you have a simple way to recognize users and bypass that cumbersome process.”

Apple might also deploy AuthenTec’s technology if it introduces new ways to make purchases with an iPhone, said Amit Daryanani, an analyst with RBC Capital Markets LLC. A fingerprint authentication could be used in lieu of signatures for credit-card payments, he said.

Steve Dowling, a spokesman for Cupertino, California-based Apple, declined to discuss the company’s strategy.

“Apple acquires smaller technology companies from time to time,” Dowling said. “We generally do not disclose our purpose or plans.”

Apple Deals

Apple has made 12 purchases in the past five years, according to data compiled by Bloomberg. They include this year’s purchase of Anobit Technologies Ltd., an Israeli company that makes flash memory drives for the iPhone and iPad, and Chomp Inc., a maker of a search engine for discovering iPhone and iPad applications.

Its biggest purchase was the $4.5 billion purchase of a patent portfolio from Nortel Networks Corp. last year, which Apple did jointly with Microsoft Corp. and other technology companies.

Piper Jaffray & Co. was AuthenTec’s financial adviser, with Alston & Bird LLP acting as legal adviser.

Brent Dietz, a spokesman for AuthenTec, and Teri Daley, a spokesman for Samsung Mobile USA, didn’t return calls seeking comment.

To contact the reporter on this story: Kathleen Chaykowski in New York at kchaykowski@bloomberg.net

To contact the editor responsible for this story: Tom Giles at tgiles5@bloomberg.net