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Two weeks ago, I added Verint Systems Inc. (NASDAQ:VRNT) to my portfolio tracked at "Globes", and said I would write more later. After a share price jump of 25%, I will go into detail.

Verint is a unit of Comverse Technology Inc. (NASDAQ:CMVT), which owns about 65% of it, on a fully diluted basis. With no financial reports from Comverse or its subsidiaries for several years, investors are a bit in the dark. Sometimes a situation like this leads to an investment opportunity, which I believe is the case with Verint, which already touched a low this year of $3 per share, compared with the current $11.

Verint jumped 22% on Friday, on news that Comverse settled its options backdating case with the SEC, and agreed to publish the missing reports, and Verint's, by February 2010.

Market sources believe that as part of a re-organization, Comverse will have to sell Verint, a process that will gain momentum with release of the financial reports. That was the exact case with Mercury, which was sold to HP (NYSE:HPQ) shortly after the release of its revised results, including all the damages of its options backdating issue.

Verint is a niche company, with excellent technology, and operates basically in the same markets as NICE Systems Ltd. (Nasdaq: NICE) advanced voice recording and analysis systems for civilian uses, such as trading rooms of financial institutions or for all types of call centers; video recording for security authorities for institutions as well as entire cities; and various monitoring technologies for security purposes in the intelligence arena.

In my opinion, these activities did not suffer during the recession, which can be seen as well in Nice's results over recent quarters.

The fact that Verint is on the block for sale or merger, led Oppenheimer analyst Shaul Eyal to analyze earlier this month, even before Comverse's settlement, the range of prices of Verint shares at which it makes sense for Nice to merge with it.

I assume that many years ago a merger of this sort was nearly completed, more than once, but the initiator then was Verint, when it traded around $30 per share, and Nice's share price was in single digits, after yet another of its profit warnings.

But that was before current Nice CEO Haim Shani took on the role and succeeded tremendously, while Verint shares fell victim to the misdeeds of chairman Alexander.

Eyal estimates that Nice and Verint have combined sales of around $1.5 billion, and if they merged they would control 70% of the market for call center recording, and over half the market for video recording for security purposes.

He believes that Nice, with $530 million in cash and no debt, can pull off the merger without short term damage to its pro-forma earnings per share.

According to his calculation, Nice can make a cash and shares offer of up to $20 per share to Verint shareholders, and still gain enough from the synergy between the two, that in 2010 the merger will make a positive contribution to earnings per share.

Eyal also feels that the merger company would not be challenged by US antitrust authorities, since despite controlling 70% of the voice and video recording market, there are many other companies in the field besides those two, and there is a lot of competition.

He also mentions other potential buyers of Verint, including IBM (NYSE: IBM), Cisco (Nasdaq: CSCO), private companies in the field, and also private investment firms.

Published originally by Globes [online], Israel business news - www.globes.co.il

© Copyright of Globes Publisher Itonut (1983) Ltd. 2006. Republished on Seeking Alpha with full permission.

Source: How Nice Is a Merger with Verint?