-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, BHpahBd0C+SW4ZPmZPN8NDuqpiVwStqSwU/+lEwA2GqVcM7ZQSOzK4jLFkhiNpP5 XFpFpj2rpE3TcdTBq/YNXQ== 0000902664-07-001239.txt : 20070316 0000902664-07-001239.hdr.sgml : 20070316 20070316104608 ACCESSION NUMBER: 0000902664-07-001239 CONFORMED SUBMISSION TYPE: SC 13D PUBLIC DOCUMENT COUNT: 2 FILED AS OF DATE: 20070316 DATE AS OF CHANGE: 20070316 SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: HYPERCOM CORP CENTRAL INDEX KEY: 0001045769 STANDARD INDUSTRIAL CLASSIFICATION: CALCULATING & ACCOUNTING MACHINES (NO ELECTRONIC COMPUTERS) [3578] IRS NUMBER: 860828608 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13D SEC ACT: 1934 Act SEC FILE NUMBER: 005-60153 FILM NUMBER: 07698420 BUSINESS ADDRESS: STREET 1: 2851 W KATHLEEN RD CITY: PHOENIX STATE: AZ ZIP: 85023 BUSINESS PHONE: 6025045000 MAIL ADDRESS: STREET 1: 2851 WEST KATHLEEN ROAD CITY: PHOENIX STATE: AZ ZIP: 85023 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: RLR Capital Partners, LP CENTRAL INDEX KEY: 0001366148 IRS NUMBER: 861142470 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13D BUSINESS ADDRESS: STREET 1: 152 WEST 57TH STREET STREET 2: 21ST FLOOR CITY: NEW YORK STATE: NY ZIP: 10019 BUSINESS PHONE: 212-903-2710 MAIL ADDRESS: STREET 1: 152 WEST 57TH STREET STREET 2: 21ST FLOOR CITY: NEW YORK STATE: NY ZIP: 10019 SC 13D 1 sc13d.txt HYPERCOM CORPORATION UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ------------- SCHEDULE 13D (Rule 13d-102) INFORMATION TO BE INCLUDED IN STATEMENTS FILED PURSUANT TO RULE 13d-1(a) AND AMENDMENTS THERETO FILED PURSUANT TO RULE 13d-2(a) Under the Securities Exchange Act of 1934 (Amendment No. ________)* Hypercom Corporation ------------------------------------------------------------------------------ (Name of Issuer) Common Stock, par value $0.001 per share ------------------------------------------------------------------------------ (Title of Class of Securities) 44913M105 ------------------------------------------------------------------------------ (CUSIP Number) Mr. Robert L. Rosen RLR Capital Partners, LP 152 West 57th Street, 21st Floor New York, NY 10019 (212) 903-2700 With a copy to: Marc Weingarten, Esq. Schulte Roth & Zabel LLP 919 Third Avenue New York, New York 10022 (212) 756-2000 ------------------------------------------------------------------------------ (Name, Address and Telephone Number of Person Authorized to Receive Notices and Communications) March 15, 2007 ------------------------------------------------------------------------------ (Date of Event which Requires Filing of This Statement) If the filing person has previously filed a statement on Schedule 13G to report the acquisition that is the subject of this Schedule 13D, and is filing this schedule because of Rule 13d-1(e), 13d-1(f) or 13d-1(g), check the following box. [ ] NOTE: Schedules filed in paper format shall include a signed original and five copies of the schedule, including all exhibits. See Rule 13d-7 for other parties to whom copies are to be sent. (Continued on following pages) (Page 1 of 9 Pages) - -------------------------- * The remainder of this cover page shall be filled out for a reporting person's initial filing on this form with respect to the subject class of securities, and for any subsequent amendment containing information which would alter disclosures provided in a prior cover page. The information required on the remainder of this cover page shall not be deemed to be "filed" for the purpose of Section 18 of the Securities Exchange Act of 1934 ("Act") or otherwise subject to the liabilities of that section of the Act but shall be subject to all other provisions of the Act (however, see the Notes). - ------------------------ ------------------------ CUSIP NO. 44913M105 SCHEDULE 13D PAGE 2 OF 9 PAGES - ------------------------ ------------------------ - ----------------------------------------------------------------------------- 1 NAME OF REPORTING PERSON I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS (ENTITIES ONLY) RLR Capital Partners, LP - ----------------------------------------------------------------------------- 2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) [ ] (b) [ ] Not Applicable - ----------------------------------------------------------------------------- 3 SEC USE ONLY - ----------------------------------------------------------------------------- 4 SOURCE OF FUNDS* AF - ----------------------------------------------------------------------------- 5 CHECK IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) or 2(e) [ ] - ----------------------------------------------------------------------------- 6 CITIZENSHIP OR PLACE OF ORGANIZATION United States - ----------------------------------------------------------------------------- 7 SOLE VOTING POWER -0- ------------------------------------------------------- NUMBER OF 8 SHARED VOTING POWER SHARES BENEFICIALLY 2,709,745 OWNED BY ------------------------------------------------------- EACH 9 SOLE DISPOSITIVE POWER REPORTING PERSON WITH -0- ------------------------------------------------------- 10 SHARED DISPOSITIVE POWER 2,709,745 - ----------------------------------------------------------------------------- 11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 2,709,745 - ----------------------------------------------------------------------------- 12 CHECK IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES* [ ] - ----------------------------------------------------------------------------- 13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 5.1% - ----------------------------------------------------------------------------- 14 TYPE OF REPORTING PERSON* IA - ----------------------------------------------------------------------------- * SEE INSTRUCTIONS BEFORE FILLING OUT! - ------------------------------ --------------------- CUSIP NO. 44913M105 SCHEDULE 13D/A PAGE 3 OF 9 PAGES - ------------------------------ --------------------- - -------------------------------------------------------------------------------- 1 NAME OF REPORTING PERSON I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS (ENTITIES ONLY) Robert L. Rosen - -------------------------------------------------------------------------------- 2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) [ ] (b) [ ] - -------------------------------------------------------------------------------- 3 SEC USE ONLY - -------------------------------------------------------------------------------- 4 SOURCE OF FUNDS* AF - -------------------------------------------------------------------------------- 5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEM 2(d) or 2(e) [ ] - -------------------------------------------------------------------------------- 6 CITIZENSHIP OR PLACE OF ORGANIZATION United States of America - -------------------------------------------------------------------------------- 7 SOLE VOTING POWER -0- ------------------------------------------------------- NUMBER OF 8 SHARED VOTING POWER SHARES BENEFICIALLY 2,709,745 OWNED BY ------------------------------------------------------- EACH 9 SOLE DISPOSITIVE POWER REPORTING PERSON WITH -0- ------------------------------------------------------- 10 SHARED DISPOSITIVE POWER 2,709,745 - -------------------------------------------------------------------------------- 11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH PERSON 2,709,745 - -------------------------------------------------------------------------------- 12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES* [ ] - -------------------------------------------------------------------------------- 13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 5.1% - -------------------------------------------------------------------------------- 14 TYPE OF REPORTING PERSON* IN - -------------------------------------------------------------------------------- * SEE INSTRUCTIONS BEFORE FILLING OUT! - ------------------------ ------------------------ CUSIP NO. 44913M105 SCHEDULE 13D PAGE 4 OF 9 PAGES - ------------------------ ------------------------ ITEM 1. SECURITY AND ISSUER This Schedule 13D relates to the shares of common stock, par value $0.001 per share (the "Shares"), of Hypercom Corporation (the "Issuer"). The principal executive office of the Issuer is located at 2851 West Kathleen Road, Phoenix, Arizona 85053. ITEM 2. IDENTITY AND BACKGROUND (a) The person filing this statement is RLR Capital Partners, LP, a New York limited partnership ("RLR"). RLR's principal business is to serve as the investment manager of funds and/or accounts, including RLR Focus Master Fund, LP, a limited partnership formed under the laws of the Cayman Islands (the "Fund") and the holder of the Shares set forth in this Schedule 13D. RLR Capital Partners GP, LLC, a New York limited liability company ("Manager"), is the sole general partner of RLR, and serving in such capacity is its principal business. Mr. Robert L. Rosen (together with Manager, RLR and the Fund, the "Reporting Persons") is the managing member of the Manager, and serving in such capacity is his present principal occupation or employment. The Reporting Persons have their principal business and office addresses at 152 West 57th Street, 21st Floor New York, New York 10019. (d) None of the Reporting Persons has ever been convicted in any criminal proceeding. (e) None of the Reporting Persons has ever been a party to any civil proceeding commenced before a judicial or administrative body of competent jurisdiction as a result of which it or he was or is now subject to a judgment, decree or final order enjoining future violations of, or prohibiting or mandating activities subject to, Federal or State securities laws or finding any violation with respect to such laws. (f) Mr. Rosen is a United States citizen. ITEM 3. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION All of the funds used to purchase the Shares described in this Schedule 13D came from the working capital of the Fund. A total of approximately $15 million was paid to acquire such Shares. - ------------------------ ------------------------ CUSIP NO. 44913M105 SCHEDULE 13D PAGE 5 OF 9 PAGES - ------------------------ ------------------------ ITEM 4. PURPOSE OF TRANSACTION The Fund originally acquired Shares for investment in the ordinary course of business because the Reporting Persons believed that the Shares, when purchased, were substantially undervalued and represented an attractive investment opportunity. The Reporting Persons have communicated with management of the Issuer, and expect to continue to do so, regarding the Company's business and prospects. On March 16, 2007, the Reporting Persons sent a letter to the Issuer urging the Issuer to repurchase up to 18 million of its outstanding Shares, curtail acquisition plans until improvements are seen in the Issuer's core business and, if operational improvements fail to show progress in 2007, commence a review of strategic alternatives, including a possible sale of the Issuer. A copy of the letter is attached hereto as Exhibit 1 and is incorporated herein by reference. Except as set forth herein or as would occur upon completion of any of the actions discussed herein, the Reporting Persons have no present plan or proposal that would relate to or result in any of the matters set forth in subparagraphs (a)-(j) of Item 4 of Schedule 13D. The Reporting Persons intend to review the Fund's investment in the Issuer on a continuing basis and may engage in discussions with management, the Board of Directors, other stockholders of the Issuer and other relevant parties concerning the business, operations, governance, management, strategy and future plans of the Issuer. Depending on various factors including, without limitation, the Issuer's financial position and strategic direction, the outcome of the discussions referenced above, actions taken by the Board of Directors, price levels of the Shares, other investment opportunities available to the Reporting Persons, conditions in the securities market and general economic and industry conditions, the Reporting Persons may in the future take such actions with respect to the Fund's investment in the Issuer as they deem appropriate including, without limitation, purchasing additional Shares or selling some or all of the Shares held by the Fund, engaging in short selling of or any hedging or similar transactions with respect to the Shares and/or otherwise changing their intention with respect to any and all matters referred to in Item 4 of Schedule 13D. ITEM 5. INTEREST IN SECURITIES OF THE ISSUER (a) The Reporting Persons beneficially own 2,709,745 Shares, constituting approximately 5.1% of the Shares outstanding. The aggregate percentage of Shares beneficially owned by the Reporting Persons is based upon 53,094,896 Shares outstanding, which is the total number of Shares outstanding as of November 3, 2006 as reported in the Issuer's Quarterly Report on Form 10Q filed with the Securities and Exchange Commission on November 9, 2006. (b) RLR and Mr. Rosen share power to vote and direct the disposition of all of the Shares held by the Fund. Thus, as of March 15, 2007, the Reporting Persons may be deemed to beneficially own 2,709,745 Shares, or 5.1% of the Shares deemed issued and outstanding as of that date. (c) The following transactions in the Shares were effected by the Reporting Persons during the past 60 days, each of which was effected in open market transactions. - ------------------------ ------------------------ CUSIP NO. 44913M105 SCHEDULE 13D PAGE 6 OF 9 PAGES - ------------------------ ------------------------ RLR Focus Master Fund, LP Trade Date Shares Purchased (Sold) Price per Share ($) - ---------- ----------------------- ------------------- 01/16/2007 25,000 6.16 01/17/2007 100 6.10 01/18/2007 30,000 6.05 01/18/2007 3,400 6.02 01/19/2007 10,000 6.01 01/19/2007 15,000 6.00 01/24/2007 10,700 6.00 01/25/2007 6,600 5.88 01/25/2007 40,000 5.97 01/25/2007 25,000 5.93 01/26/2007 30,000 5.90 01/26/2007 10,000 5.90 01/29/2007 15,000 6.04 01/29/2007 15,000 6.00 01/30/2007 25,000 6.00 01/31/2007 20,000 6.07 02/01/2007 4,000 6.03 02/02/2007 20,000 6.03 02/05/2007 20,000 5.96 02/06/2007 25,000 5.90 02/07/2007 25,000 6.03 02/08/2007 12,300 6.05 02/09/2007 25,000 6.02 02/12/2007 20,000 5.96 02/13/2007 20,000 5.95 02/14/2007 20,000 6.07 02/15/2007 1,300 6.01 02/15/2007 20,000 6.03 02/16/2007 20,000 6.00 02/21/2007 700 5.96 02/28/2007 1,500 5.57 03/01/2007 4,200 5.57 03/02/2007 40,000 5.48 03/02/2007 3,600 5.45 03/05/2007 50,000 5.47 03/06/2007 2,000 5.40 03/06/2007 60,000 5.45 03/06/2007 20,000 5.48 03/07/2007 200,000 4.92 03/07/2007 51,600 4.94 03/08/2007 5,000 4.80 03/08/2007 50,000 4.79 03/09/2007 250,000 4.77 - ------------------------ ------------------------ CUSIP NO. 44913M105 SCHEDULE 13D PAGE 7 OF 9 PAGES - ------------------------ ------------------------ 03/12/2007 16,000 4.99 03/12/2007 287,300 5.00 03/13/2007 51,445 5.09 03/13/2007 475,000 5.08 03/14/2007 15,000 4.99 03/15/2007 60,000 5.09 (d) No person other than the Reporting Persons is known to have the right to receive or the power to direct the receipt of dividends from, or the proceeds from the sale of, such Shares. (e) Not applicable. ITEM 6. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH RESPECT TO SECURITIES OF THE ISSUER Except as otherwise set forth herein, the Reporting Persons do not have any contract, arrangement, understanding or relationship with any person with respect to the securities of the Issuer. ITEM 7. MATERIAL TO BE FILED AS EXHIBITS 1. Letter from the Reporting Persons to the Issuer, dated March 16, 2007 - ------------------------ ------------------------ CUSIP NO. 44913M105 SCHEDULE 13D PAGE 8 OF 9 PAGES - ------------------------ ------------------------ SIGNATURES After reasonable inquiry and to the best of my knowledge and belief, I certify that the information set forth in this statement is true, complete and correct. Dated: March 16, 2007 /s/ Robert L. Rosen ------------------------------ Robert L. Rosen, in his capacity as the managing member of RLR Capital Partners GP, LLC, the sole general partner of RLR Capital Partners, LP /s/ Robert L. Rosen ------------------------------ Robert L. Rosen - ------------------------ ------------------------ CUSIP NO. 44913M105 SCHEDULE 13D PAGE 9 OF 9 PAGES - ------------------------ ------------------------ EXHIBIT INDEX 1. Letter from the Reporting Persons to the Issuer, dated March 16, 2007 EX-99 2 exh99.txt EXHIBIT 99 March 16, 2007 Mr. Daniel D. Diethelm, Chairman Mr. William C. Keiper, CEO Hypercom Corporation 2851 West Kathleen Road Phoenix, AZ 85053 Dear Messrs. Diethelm and Keiper: RLR Capital Partners and RLR Focus Fund, L.P., are shareholders of Hypercom Corporation, owning 2,709,745 shares, which approximates 5.1% of shares outstanding. We became owners of Hypercom during 2006. RLR established its initial position in Hypercom because we felt the company's prospects were not being adequately valued by the markets. We were attracted by your meaningful market share of POS products, your new product pipeline, the strong macro trends in the industry, your promising relationship with both Symbol Technologies and Motorola, the energy of new members of your senior management team, the opportunity for meaningful gross profit and operating margin improvements and your share repurchase history. The dialogue that we have had with senior management, both at the company's headquarters in Phoenix and in numerous phone conversations, as well as our own industry research, have increased our conviction that there is significant value resident in Hypercom. Further, we believe that the strategy that management was pursuing in late 2006, of focused product-oriented top-line expansion, cost cutting through manufacturing and operational efficiencies, and the use of cash for share repurchases, was the correct plan for unlocking that value. We are now troubled, however, by management's new strategy, as detailed on Hypercom's March 7th, 2007 earnings call. Specifically, management talked about the company's intention to use its cash position, plus cash generated from the monetization of low-return assets such as the company's headquarters building and land in Phoenix, to grow through acquisition in the terminal services market. Further, you stated that, "while tempting", the company would not use cash to repurchase shares. We believe that such an open-ended acquisition strategy is the wrong use of cash for the company today. Rather than burden your shareholders with the execution and integration risks attendant with acquiring potential growth outside of the company's core competencies, we believe that there is no better investment that the company could make right now than repurchasing its own shares. Indeed, with shares currently trading at 4.5xEV/EBITDA (2007E), a significant discount to comparable industry multiples (detailed below), your shares represent the most attractive investment opportunity in the electronic payment terminal industry. What better opportunities could there be? We urge you and the other members of the Board of Directors to have the company pursue an immediate repurchase of one-third of its outstanding shares. Such a transaction could be financed entirely by the cash and short-term investments on the company's balance sheet (using approximately $61 million of the $81.4 million as of December 31, 2006, and leaving $20 million for working capital purposes) and the after-tax proceeds from the sale of the building and land in Phoenix (approximately $25 million, which could immediately be accessed by borrowing against the value of the real estate). With this $86 million, you could repurchase nearly 18 million shares, out of approximately 53 million outstanding, based on the average closing price since the March 7th call. In addition to the use of cash required for such an acquisition strategy, we are also concerned about the use of management's time and focus, when there is still so much work to do improving the core business. The company has made important strides in taking costs out of the business, both in the cost of goods sold and in operating expenses. But management must continue to focus on product development, certification and sales in order to grow revenue and truly demonstrate the operating leverage in the company's business model. Further, while Hypercom's operating margins should approach or exceed 10% this year, after several years of low-to-mid single digit margins, these margins still significantly trail the industry. While scale advantages may explain why competitor VeriFone Holdings, Inc. has margins exceeding 20%, Lipman Electronic Engineering (see more below) also had operating margins approaching 20% on a very similar revenue base to Hypercom's, prior to Lipman's acquisition by VeriFone. The company's efforts in the sales and margin areas are too important to have management's attention diverted away from them. To put this opportunity into perspective, based on our projected 2008 revenue for Hypercom of at least $340 million, each incremental 100 basis points of margin improvement yields approximately $0.10 of incremental EBITDA/share, giving effect for the reduced share count from the buyback described above. Using a range of EBITDA multiples of 8-12 times (described further below), each incremental $0.10 of EBITDA/share is worth $0.80-1.20/share in valuation, which is significant given your current share price. If Hypercom can achieve margins similar to those of Lipman when it was acquired (i.e., 20% in 2008 vs. projected 10% in 2007), then the incremental 1000 basis points of margin improvement would yield an additional $1.00/share of EBITDA, which would be worth $8.00-12.00/share, or $280-420 million in total. You would be hard-pressed to make a case that you could achieve similar value creation using the $86 million described above for an acquisition strategy that is fraught with risk and management distraction, particularly when the two levers needed to create significant value, share repurchases and continued margin improvement, are largely under your control. Lastly, if the company is not able to achieve its targets of mid-teens sales growth and low double digit operating margins in 2007, we believe the Board should conduct a review of strategic alternatives for the company, including a possible sale. There is a history of successful acquisitions in your industry, both by large equipment manufacturers and private equity firms, and a brief look at industry valuations will show why this tack could unlock value for Hypercom. In April 2006, VeriFone Holdings, Inc. entered into a definitive agreement to acquire Lipman Electronic Engineering for approximately $793 million; that deal closed on November 1, 2006. This transaction combined the #2 and #3 players in the electronic payment terminal industry, by market share and revenue, to create a new #1 player, VeriFone. When Lipman was acquired, it had approximately $270 million in revenue, and was acquired for approximately 12 times current year (2006) EBITDA and 10 times forward year (2007) EBITDA. In 2007, Hypercom should generate more than $280 million in revenue, or slightly more than Lipman had when it was acquired, and should be able to generate $35 million in EBITDA, as the operating leverage inherent in the company's business model becomes more evident in the second half of 2007. Further, in 2008, we believe that Hypercom could generate at least $340 million in revenue and $45 million in EBITDA. Based on the Lipman acquisition multiples, and using the lower Hypercom share count of 35 million, Hypercom would have a value of $420-450 million, or approximately $12-13 per share. In addition to these values, of course, would be the incremental free cash flow that the company will generate in 2007 and 2008, which could be $30 million, or nearly another $1.00 per share of value. (Further, Lipman was purchased for three times current year revenue; such a multiple would imply a value of $24 per share for Hypercom!). The current #2 player in the industry, Ingenico, trades at over 10 times 2007 EBITDA and over 8 times 2008 EBITDA. At these lower multiples, Hypercom would be worth at least $350 million, or $10 per share (again before the free cash flow benefit). These values are significantly in excess of the current share price. Further, we believe that there are over $20 million of costs that an acquirer could take out of Hypercom's cost structure, which at a comparable multiple to those described above, would alone be worth your entire current enterprise value. Surely the value of nearly $300 million of revenue and the intellectual property surrounding the next generation of products in development are additive to this value. Let's summarize our suggestions: 1. Immediately commence a buyback or tender offer for up to 18 million shares. 2. Curtail your acquisition plans until improvements are seen in the core business. 3. Should operational improvements fail to show progress in 2007, commence a review of strategic alternatives including a possible sale of the company. It is our intention to continue to discuss our ideas with management and hope to expand our dialogue to include the board as well. We also intend to speak to other shareholders and build a strong consensus of opinion in support of our value creating ideas. Very truly yours, /s/ Robert L. Rosen Robert L. Rosen Managing Partner cc: Phillip J. Riese, Director Norman Stout, Director -----END PRIVACY-ENHANCED MESSAGE-----