AuthenTec and UPEK to merge

AuthenTec, a provider of security, identity management and touch control solutions, and UPEK, a supplier of fingerprint solutions, announced that the companies have combined, creating the world’s largest provider of fingerprint sensors and identity management software, as well as biometric and embedded security solutions.

AuthenTec will remain headquartered in Melbourne, Florida and will be led by newly named CEO Larry Ciaccia, who previously served as AuthenTec’s President and Chief Operating Officer.

The combined company will benefit from AuthenTec’s position in the PC and wireless markets as well as in embedded security, and from UPEK’s software expertise, presence in the PC and wireless markets and government biometrics. AuthenTec will now be able to provide customers a broader portfolio of smart sensor hardware and identity management software as well as embedded security solutions.

UPEK had 2009 revenue of $18.0 million and $11.7 million in revenue (unaudited) in the first half of 2010 (ending June 30, 2010). The combined company is expected to generate in excess of $10.0 million in cost synergies in 2011.

The transaction, on a non-GAAP basis, is expected to be accretive to AuthenTec’s earnings per share by the second quarter of 2011, and the combined company expects to be profitable, on a non-GAAP basis, by the third quarter of 2011.

Under the terms of the transaction, UPEK’s shares will be exchanged for approximately 5.9 million shares of AuthenTec’s common stock and a convertible promissory note in the aggregate principal amount of $21.6 million that will be satisfied by either the issuance of approximately 8.0 million additional shares of AuthenTec common stock or the repayment of the principal amount of the note by March 1, 2011, subject to a one-time extension of up to 60 days.

Issuance of the additional shares is subject to shareholder approval, and AuthenTec will hold a special meeting of shareholders as soon as reasonably practicable to allow shareholders to vote upon the conversion into AuthenTec shares of the convertible promissory note. If shareholders approve the conversion, and shares are issued to satisfy the note, UPEK shareholders would own approximately 31% of the combined company. The transaction has been approved by the Boards of Directors of both companies.