Shareholder sues Cogent over 3M merger deal

Thu Sep 2, 2010 9:53am EDT

* Shareholder seeks higher price

* Says deal structure blocks competing offers

WILMINGTON, Del., Sept 2 (Reuters) - A shareholder of Cogent Inc has sued the company's board, saying it agreed to sell the maker of identification systems too cheaply to U.S. manufacturer 3M Co, according to a legal complaint.

Pasadena, California-based Cogent COGT.O, which makes automated fingerprint identification systems that are used to screen travelers at border crossings, agreed on Monday to sell the company to 3M (MMM.N) for $10.50 a share, or $943 million.

The shareholder, St Nevan US Limited, argued in court papers filed Wednesday in Delaware's Chancery Court that Cogent's board structured the deal to reap a windfall for themselves while blocking competing bids.

Cogent and St. Paul, Minnesota-based 3M are both Delaware corporations.

The lawsuit notes that shareholders will not be given a vote on the deal, includes a $28.3 million break-up fee and promises of continued employment by 3M to Cogent CEO and founder Ming Hsieh, who owns 38.9 percent of the company's stock.

"Individual defendants failed to conduct a full and fair sales process and have agreed to onerous deal terms which effectively lock up the proposed transaction in favor of 3M in order to maximize their own financial interests at the expense of Cogent's shareholders," the lawsuit said.

After the deal was announced on Monday, Cogent's stock rose above $11.00 a share and analysts noted other bidders may emerge.

Analyst Josephine Millward of Benchmark Co LLC said that 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.

The shareholder is seeking class action status and is seeking to block the proposed merger until Cogent's board adopts procedures to get a higher price for the company.

Cogent and 3M did not immediately return a call for comment.

The case is St Nevan US Ltd v Cogent Inc, Ming Hsieh, John C. Bolger, John P. Stenbit, Kenneth R. Thornton, 3M Company and Ventura Acquisition Corp., Delaware Chancery Court, No. 5780. (Reporting by Tom Hals; additional reporting by Nick Zieminski in New York, editing by Dave Zimmerman)

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