UPDATE 3-Gemalto to buy U.S. data protection firm SafeNet for $890 mln

Fri Aug 8, 2014 7:19pm EDT

* Gemalto to buy SafeNet from PE firm Vector Capital

* Deal to be funded with cash and debt and close in Q4

* Gemalto to beat 2017 op profit target by c. 10 pct

* Shares rise 3.9 percent (Adds Breakingviews link)

By Natalie Huet

PARIS, Aug 8 (Reuters) - Gemalto NV, the digital security company that makes smart chips for mobile phones, bank cards and biometric passports, is to buy U.S.-based data protection specialist SafeNet for $890 million, it said on Friday, in a move set to boost its earnings and reach.

Gemalto has signed a definitive agreement to buy all of SafeNet's shares from private equity firm Vector Capital, using its available cash and credit facilities, the Amsterdam-based company said in a statement.

The deal will expand Gemalto's customer base to major U.S. clients and strengthen its offering in data protection at a time when cybersecurity is a growing headache for corporations and government agencies alike.

Gemalto expects the deal will close in the fourth quarter and enable it to beat by around 10 percent its 2017 target for profit from operations of 600 million euros ($801.60 million).

Gemalto's shares were 3.9 percent higher at 71.95 euros at 0834 GMT, by far the top gainers on France's CAC 40 blue-chip index, down 0.3 percent, and the second-best performers on the European STOXX 600 index, down 1 percent.

"At first glance, it looks a sensible deal," said brokerage Mirabaud Securities, which has a "buy" recommendation on the stock and a price target of 95 euros. "We hope this acquisition can reignite interest in the company and its leadership position in digital security."

The tie-up comes amid a growing number of high-profile data breaches. Earlier this week, The New York Times reported that a cybersecurity firm uncovered about 1.2 billion Internet logins and passwords amassed by a Russian crime ring.

SafeNet provides data protection solutions including encryption technologies and authentication systems with its technology used to protect of 80 percent of intra-bank transfers worldwide, the company said.

The deal values SafeNet at 2.4 times its forecast full-year revenue, and 17.4 times its estimated operating profit. That is in line with the sales and earnings multiples for Gemalto, which has a market capitalisation of about 6.3 billion euros ($8.4 billion).

Shares in Gemalto, which pioneered the use of smart cards, have fallen 10 percent in the past year over worries about its growth prospects and trade at a sharp discount to those of its peers such as Ingenico and STMicroelectronics whose price-earnings ratio is above 20.

Headquartered in Maryland, SafeNet has 1,500 staff and operations in 27 countries. It has over 25,000 clients in some 100 countries, including government agencies and major corporations such as Cisco, Bank of America, Hewlett-Packard and Netflix.

SafeNet reported revenue in 2013 of $337 million and a profit from operations of $35 million and expects revenue this year of $370 million and a profit of $51 million.

Gemalto said it would finance the deal using $440 million from available cash and $450 million from existing long-term credit facilities. (1 US dollar = 0.7471 euros)

(Additional reporting by Alexandre Boksenbaum-Granier; Editing by Sunil Nair and Greg Mahlich)

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