Bank systems stocks got hit with some profit taking last week, as investors appeared to take home some holiday gifts after a banner year in the technology sector.
While the Dow Jones industrial average hovered around the 5,200 level for the week, the technology-laden Nasdaq stock index was lower. Heavy trading volume indicated investors were squaring positions with the final "triple witching" session of the year - the quarterly expiration of stock- index futures and options contracts.
In news affecting bank technology firms, Hogan Systems Inc. announced Monday that it has agreed to a merger with Continuum Co. in a stock swap.
Dallas-based Hogan, a leading developer of core accounting and profitability software for large banks, agreed to exchange one share of its common stock for 0.355 shares of Continuum's equity. Austin, Tex.-based Continuum sells software and data processing services to more than 600 insurance companies worldwide.
The merger was initially valued at more than $230 million, based on Dec. 8 closing prices, but after the deal was announced investors drove down Continuum's stock price about 13% for the week, to $35.25 a share.
Hogan's shares rose just 62.5 cents for the week - after a gain of more than $2 the week before - closing Friday at $12.25 per share.
Richard X. Bove, an analyst with Raymond James & Associates in St. Petersburg, Fla., said that while the deal overall "is an excellent merger," Continuum's management, during a conference call with analysts last Monday, left him with the impression "they didn't fully understood Hogan's business yet."
Mr. Bove said Continuum justified the acquisition by saying it could bring Hogan more revenues by offering banks interested in Hogan software the option of outsourcing their entire technology operation. "That's not very realistic," he said, noting most large banks still prefer to run the core accounting systems themselves.
Continuum officials also told Wall Street analysts that the acquisition gives them a foothold in the nascent world of "electronic commerce," but Hogan's prospects in that arena are purely speculative at the present time, Mr. Bove said.
Donald H. Newman, an analyst who follows Continuum for Ladenburg, Thalman in New York, said stockholders were slightly surprised by Continuum's move into banking technology.
"Continuum has the insurance industry almost in the palm of their hand - they have no vendor competition in five of the six world markets they operate in," Mr. Newman said. "We had no worry on their earnings, and were looking at a $50-$60 stock 12 months out. And then (Continuum chief executive officer) Michael Long springs Hogan on us."
Mr. Newman said the deal may eventually be seen as winner because in the past, "Continuum has done exceedingly well on their acquisitions."
Mr. Bove also took the longer view, saying he still liked the merger because he said it gives Hogan access to more capital and Continuum's larger sales force, and the acquiring company gets access to Hogan's data warehousing and profitability software, which he described as "the best out there for large banks."
In other news, data processing company Electronic Data Systems Corp. announced Tuesday it has agreed to acquire 80% of Technocaixa, the outsourcing subsidiary of Spain's La Caixa savings bank, for $32.7 million, the bank said.
Plano, Tex.-based Electronic Data also will get La Caixa's 25.5% stake in IGR, a company that manages telecommunications networks for the banking group.