SafeNet’s acquisition of UK encryption specialist nCipher was stopped in its tracks by customer unhappiness, nCipher CEO Alex van Someren has admitted.

On March 30th, the UK’s competition authority, the Office of Fair Trading, referred the US company’s proposed £86 million ($150 million) takeover to the Competition Commission, citing anti-trust concerns.

In the light of the news, SafeNet announced last week that it was backing out of the takeover, swallowing a reported $1.4 million in charges and firing its CFO Ken Mueller in the process.

The OFT cited worries over competition as the reason for the referral.

“This transaction will bring together two of the largest suppliers of HSMs (hardware security modules) in the UK. The loss of competitive pressure between the parties may lead to customers facing higher prices and a loss of innovation,” the official statement said.

It now appears that the OFT was decisively swayed by testimony from nCipher customers.

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“Customers didn’t want to see this merger take place. There was the possibility of prices rising,” van Someren told Techworld. The OFT had contacted customers as part of its regulatory oversight and the feedback had not been positive as regards the US outfit’s market intentions.

As the person who dealt with OFT enquiries, he had not been surprised by the OFT’s decision. The combined market share of the companies was approaching 90 percent, which was bound to be of concern for the regulators.

“They (SafeNet) had a poor understanding of how UK takeovers work and they were badly advised”, van Someren said.

“SafeNet was trying to take us out because we were causing them pain,” van Someren added. The two companies must now go back to being the best of enemies.

He rejected worries that the failed takeover might have allowed his main rival to gain insight into nCipher’s deeper secrets. “I personally managed the process (of information disclosure) using an online data room. That allowed us to do a sort of striptease.”

The Cambridge company hasn’t escaped from the process without scars – a takeover process inevitably risks hitting sales – but its failure is bound to be seen as a minor debacle for SafeNet. With some difficult quarters not helping matters, the company has some bridge-building to do with Wall Street.