Apple Inc. (AAPL:US) agreed to acquire AuthenTec Inc. (AUTH:US) 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 and in case it decides to introduce features for making payments with a phone.
“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 66 percent to $8.42 at the close in New York, the biggest gain since its 2007 initial public offering, suggesting investors may anticipate a higher bid. Apple increased 1.8 percent to $585.16.
The deal may hurt Samsung Electronics Co., Apple’s biggest competitor in smartphone sales, which last week said it would start using AuthenTec’s technology in new devices. Samsung is unlikely to continue with plans to use AuthenTec under Apple’s ownership, said Jay Chaudhry, CEO of Zscaler Inc., a computer security company.
Given that, Samsung might consider bidding for AuthenTec, 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:US), 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.
Apple might deploy AuthenTec’s technology to introduce new ways to make purchases with an iPhone, said Chaudhry. Fingerprints could be used in lieu of signatures, he said.
“In mobile payments, strong authentication becomes very important,” Chaudhry said. “Now Apple will own that technology and it becomes easier for them to embed it in their devices.”
Adding AuthenTec’s technology also 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 of Voltage Security.
“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.”
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 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.
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