SAFRAN Counters L-1's Bid For Digimarc

France's SAFRAN yesterday said it has made an unsolicited offer to acquire Digimarc Corp. [DMRC], the leader in the United States drivers' license credentialing market for $300 million in cash, which trumps the value of an existing $263 million offer from L-1 Identity Solutions [ID].

SAFRAN's proposed offer must still be evaluated by Digimarc's board of directors, which said "could reasonably be expected to lead to a superior proposal" over L-1's offer. However, SAFRAN has yet to enter due diligence and Digimarc's board must still completely evaluate the new offer.

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Earlier this month L-1's offer received Hart-Scott-Rodino anti-trust approval from the Federal Trade Commission. But that doesn't mean that SAFRAN's offer can't win out. SAFRAN, if it enters an agreement to acquire Digimarc, must clear review by the Committee on Foreign Investment in the United States (CFIUS).

Stanford Group emerging technologies analyst Jeremy Grant doesn't see a SAFRAN deal for Digimarc running into show stopping resistance. He does believe that in the end, L-1, which agreed to acquire Digimarc in March, will up its offer by $1 or $2 per share to secure the deal.

If Digimarc's board finds SAFRAN's offer to be superior, it must give L-1 five days to make a new offer. L-1 yesterday played the national security card regarding the SAFRAN proposal.

"Placing the credentialing of U.S. citizens in the hands of a foreign entity calls to question many potential dangers, including concerns of national security," Robert LaPenta, L-1's chairman and CEO, said in a statement. "I am certain that the federal government, particularly with the anticipated implementation of the REAL ID initiative, will not prefer to place U.S. citizens' personal information and the issuance of their credentials in the hands of a company outside of our national borders, particularly one that is more than 30 percent owned and controlled by the French Government."

Digimarc's ID business had about $97 million in sales last year, most of that in the drivers' license market. About $13 million of the company's sales are in digital watermarking, a business that will be spun out regardless whether L-1 or SAFRAN are successful in acquiring Digimarc.

The U.S. drivers' license market is just one of many sectors in the secure credential business but is seen as an attractive growth market because for states that adhere to the requirements of REAL ID, its citizens get the benefit of having a document that is accepted as a means of progressing through U.S. airport checkpoints.

For drivers' licenses to meet REAL ID requirements certain information and security requirements must be incorporated into each card. Moreover, the processes for producing the card must meet certain security standards and applicants' must have their identifying documents verified, all of which serves to further tie an individual to his or her license as well as demonstrate that the person is either a U.S. citizen or has legal status in the U.S.

SAFRAN said it has identified the secure identity document sector as an attractive growth market that complements its existing capabilities in the security market. The company's Sagem Securite division develops and produces biometric identity solutions and smart card products. Sagem Securite has a U.S. subsidiary, Sagem Morpho, which sells various biometric technologies to various federal, state and local customers.

While there has been resistance from some states to implementing REAL ID, Congress and the Department of Homeland Security have been trying to make it easier financially for states. Last week DHS released nearly $80 million in potential grant funding to help states improve the security of their driver's licenses and identity documents. That's on top of $58 million that DHS said it has already provided the states to help states get compliant with REAL ID requirements.

TICKER(S): Digimarc Corp. [DMRC]: L-1 Identity Solutions [ID]: