Foreign offer for Digimarc stirs controversy

The pending sale of government identification card maker Digimarc Corp. is becoming controversial after Robert LaPenta, chairman of prospective buyer L-1 Identity Solutions Inc., suggested this week that a competing offer by a French bidder raises national security concerns.

Digimarc, a leading manufacturer of state-issued driver's licenses, announced June 22 that it had received an unsolicited $300 million cash bid from Paris-based defense firm Safran S.A., a significant portion of which is owned by the French government.

Digimarc had agreed in March to be acquired by L-1 for about $250 million, based on stock values at that time. The sale price under that agreement is now estimated at $263 million.

Placing the credentialing of U.S. citizens in the hands of a foreign entity evokes many potential dangers, including concerns of national security, LaPenta said in a June 23 news release. "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."

Safran's nonbinding proposal is conditional and subject to due diligence. It is also subject to confirmation by the Committee on Foreign Investment in the United States.

L-1 said yesterday that it is weighing its options, and an analyst suggested it should raise its offer for Digimarc to match Safran's offer.

"While less attractive, the deal is still accretive and important to L-1's strategy," said Jeremy Grant, senior vice president at Stanford Group Co., an investment firm in Washington.

L-1 officials said the merger agreement with Digimarc remains in effect, and Digimarc is not entitled to terminate the agreement unless it offers L-1 five days of negotiating rights. That had not occurred as of yesterday.

As part of the merger agreement with L-1, Digimarc agreed to spin off its digital-watermarking business.

Digimarc, based in Beaverton, Ore., had revenues of $110 million in 2007, and L-1, of Stamford, Conn., had revenues of $350 million.