By Kristin Jones
The next chief executive of VeriFone Systems Inc. (PAY) will
face the task of transitioning the maker of credit-card terminals
into more of a services-based business amid challenges to its core
payment operations.
Despite those hurdles, in the eyes of some analysts and
investors, the new person will come into the job with at least one
major advantage over the longtime predecessor: He or she won't be
outgoing Chief Executive Doug Bergeron.
"The old management's credibility was not that good with the
Street," said Susquehanna analyst Meghna Ladha, citing VeriFone's
history of restating financial results and lowering guidance.
VeriFone didn't make anyone available for comment on this story.
On Monday, the company named Chairman Richard McGinn to serve as
interim CEO while it engages an executive search firm to help find
Mr. Bergeron's replacement. Mr. Bergeron also was unavailable to
comment Tuesday, but said in a written statement Monday that the
timing was right for new leadership.
The next CEO will start with a clean but heavy slate, as the
company is in the midst of a significant transformation.
The San Jose, Calif., company historically has been a hardware
company, getting one-time payments from selling its card-payment
machines, which are used in stores world-wide. It has sought to
change its business, giving away or subsidizing machines that are
tied to a monthly service fee. But the shift came at the cost of
hardware sales--still its main revenue stream--hurting financial
results and allowing rival Ingenico S.A. (ING.FR) to take market
share, analysts have said.
In addition, the company is dealing with secular challenges,
such as retailers' shift away from the use of payment terminals, as
more people use their phones or other methods to check themselves
out. Also, U.S. retailers are grappling with a need to reduce store
space, noted Pacific Crest Securities analyst James Faucette.
"There are long-term headwinds for VeriFone regardless of who's
in charge," Mr. Faucette said.
Investors, though, indicated relief that Mr. Bergeron was no
longer in charge. Mr. Bergeron joined the company in 2001 and is
the only CEO the company has had since going public in April 2005.
VeriFone shares closed 6% higher Tuesday at $21.68, but are still
down 57% over the past year.
The stock's gains Tuesday came after the company last month
slashed its first-half outlook, as it struggles to transition into
a services-based business and suffers from macroeconomic weakness
in Europe and delayed projects from major customers. Despite the
setbacks, the company should continue to move deeper into services,
analysts said.
"They need to grow services in this business. It doesn't make
sense to move away from that," said Ms. Ladha. But the company is
likely to pursue a strategy that is more realistic, and more
consistent, she believes. "They just won't be so aggressive."
Among the aggressive moves that have hurt VeriFone's bottom line
was the $458 million takeover of Hypercom in 2011. The company
overpaid for Hypercom, said Wedbush analyst Gil Luria, and the
integration has been problematic.
Meanwhile, the CEO transition has raised questions about whether
the company might become an acquisition target. Susquehanna's Ms.
Ladha cited VeriFone's "solid fundamentals" and said that with a
market capitalization of about $2.35 billion, the company would be
a cheap buy for a major player like Google Inc. (GOOG), which has
made its own inroads into the payments business with its Wallet
app.
The company's newly appointed chief financial officer, Marc E.
Rothman, who succeeded finance chief Robert Dykes after Mr. Dykes
retired Feb. 28, has some experience in selling businesses to
Google. Mr. Rothman is the former finance chief of Motorola
Mobility Inc., which was acquired by the Internet search giant.
Wedbush's Mr. Luria, however, called the scenario of a sale to
Google or a similar company as "wishful thinking." The analyst
believes VeriFone's current portfolio of products makes it a more
likely target of a nuts-and-bolts industrial company or
conglomerate, which would be less prone to pay a high premium for
the company.
A representative for Google wasn't immediately available for
comment.
VeriFone's strategy may depend largely on who is tapped to be
the new chief. Susquehanna believes the board may choose a leader
with a background in technology, as the company seeks to balance
its services and hardware business. Others say a grounding in tech
isn't necessary.
"I don't think VeriFone's a very complex company," Mr. Luria
said, adding that the company just needs "somebody with a good
head."
Write to Kristin Jones at kristin.jones@dowjones.com
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