Hughes Telematics, an Atlanta company that an unimpressed auto industry executive once said was headed by "three guys in a basement," has been sold to a world leader in telecommunications for more than $600 million.
Verizon Communications agreed to pay more than double the company's stock price when it closed at trading Thursday, a super premium for a business that's been losing money but is considered to have great prospects.
Hughes is known for developing wireless connectivity systems for vehicles and big customers include automakers Mercedes and Volkswagen. But its technology has broader applications across other industries including health care, Verizon said in announcing the deal Friday. Telematics uses computer and wireless technologies to carry information across networks.
Hughes, which employed 374 people as of the end of 2011 and has its headquarters in Atlanta, was started as a private company in 2006, two years after it was conceived by brothers Chuck and Kevin Link and their friend Fred Blumer. The partners had an in-vehicle communications system developed by Chuck Link that they were pitching to potential customers when the auto executive made his observation.
Despite the initial skepticism, the partners grew the business and it went public after merging with Polaris Acquisition Co. in 2009. The company's largest shareholder is Apollo Global Management, a private equity firm, according to the most recent corporate filings.
Verizon is paying $12 a share in cash for Hughes, or $612 million total. The deal, unanimously approved by Hughes' board, is expected to close by the third quarter this year. Verizon said it plans to retain the current management team and to operate Hughes as a subsidiary.
The business will continue to be headquartered in Atlanta, the company said.
Verizon said the acquisition will allow it to expand its automotive and fleet telematics business. John Stratton, president of Verizon Enterprise Solutions, said the combined operation, however, "has the potential to reach beyond the automotive and transportation realm to create new opportunities," including products for health care and the home.
Verizon also owns 55 percent of Verizon Wireless which provides wireless connectivity to General Motors' OnStar service, another telematics services provider.
Hughes lost $81.2 million last year on revenue of $71.3 million.
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