Is Lipman Behind VeriFone's Current Troubles?

Remember Lipman Engineering, the Israeli payment terminal company Verifone (NYSE: PAY) bought in 2006?

Verifone’s stock dropped almost 50% Monday, on news that it needed to restate earnings for the first three quarters of 2007. Management blamed accounting issues that accounted for inventory on the company's books too cheaply.

A Goldman Sachs (GS) report that was published on Monday said that while management didn’t say it, at the heart of the matter was the Lipman acquisition, and friction that is derived from differing business models. Until the Lipman acquisition, Verifone had fully outsourced production of its payment terminals used at point-of-purchase in thousands of retail locations internationally. Lipman does manufacture some of its equipment and it’s this hybrid model that is causing Verfine to struggle.

Lipman was a value play, and we made money off of it way back when. Lipman, like many other Israeli companies, had a distribution advantage when it came to selling into emerging markets. This same know-how is part of the reason Verifone bought them. We’re on the sidelines on this one to see what’s really going on under the hood.

Disclosure: The author’s fund has no position in any stock mentioned as of December 4, 2007.