As eFunds Corp. shops itself, one of its biggest shareholders is hoping for a vigorous auction.
"This is the kind of company that is small enough that a lot of guys could be interested," said Craig Effron, the managing partner at Scoggin Capital Management LP.
Mr. Effron said he and his partner in the New York hedge fund, Curtis Schenker, began buying shares of the Scottsdale, Ariz., transaction processor after eFunds announced May 9 that it would consider selling itself.
According to a regulatory filing last Tuesday, the parties collectively had acquired 6.8% of eFunds' stock. Mr. Effron said the Scoggin group bought the shares at around $32. The stock was trading at $35.71 Friday afternoon.
In light of the deal by a larger transaction processing rival, First Data Corp., to be sold to the private-equity firm Kohlberg Kravis Roberts & Co., "it all added up as a decent thing to get big in," Mr. Effron said Friday.
He said he had no inside information about reports that two of the industry's largest vendors, Fiserv Inc. of Brookfield, Wis., and Fidelity National Information Services Inc. of Jacksonville, Fla., had entered the bidding. Bloomberg reported Friday that each of the vendors was offering more than $1.5 billion for eFunds.
"If we get lucky, if it gets heated and a lot of guys come to the party, it could go higher," Mr. Effron said, citing published reports that up to four companies may be bidding for the company.
"When you have four strategic buyers and a property that's not that big to swallow, it could become very interesting," he said.
Spokespeople for Fiserv and Fidelity said that because of company policies they could not comment on market speculation. eFunds did not reply to a request for comment.
The money manager Royce & Associates LLC of New York, an independent affiliate of Legg Mason Inc., disclosed last week that it had reduced its stake in eFunds to about 7%. The vendor's proxy statement said that Royce was its largest shareholder as of March 30, owning more than 12%.
Paul F. Walsh, eFunds' chairman and chief executive officer, said in May that the wave of deals in the banking technology market had prompted him to consider a sale, despite ignoring bids the company had received in the past. With a stock price then of roughly $28.50, eFunds' market valuation was around $1.4 billion.
John Kraft, an analyst at D.A. Davidson & Co., said the price likely will go higher than the reported $1.5 billion.
He noted that eFunds' price on Friday put its market value above $1.6 billion, indicating that the market expects the bids to rise. eFunds' eclectic collection of businesses could make it appealing to a variety of strategic buyers, especially core processors like Fiserv and Fidelity that historically have grown by acquisition, Mr. Kraft said.
"It's a proven technique for these core processors to offer more products and services," he said. "eFunds has a slew of services and products that would fit well with any of these."
Gil B. Luria, an analyst at Wedbush Morgan Securities, said eFunds' pieces could be more valuable to multiple buyers than the company as a whole would be to a single one.
"They have parts of their business that are very interesting to different companies in this space," said Mr. Luria, who rates eFunds a "buy." "If the best bid they get is a breakup bid, that's what they'll do."
Its risk management unit could be eFunds' most attractive component Mr. Luria said. Its debit bureau, which has 9,000 institutions in its database, is unique in its field and could draw interest from any of the three major credit bureaus, and the risk business is profitable and growing, he said.
By contrast, eFunds' electronic fund processing services and software products are in a "somewhat commoditized business where they compete with much larger players, like First Data," Mr. Luria said.
However, for vendors such as Fiserv, Metavante Corp. (which is being spun off by Marshall & Ilsley Corp.), or even MasterCard Inc., a former eFunds client that has talked about expanding its processing capabilities, the eFunds operation would be a way to add scale, Mr. Luria said.
Also, eFunds recently acquired a prepaid card operation that could be an attractive stand-alone business for a buyer, Mr. Luria said.
"Everybody who could be thinking about this is thinking about this," he said of eFunds' operations.
A.G. Edwards & Sons Inc. downgraded Fidelity Friday, to "hold" from "buy," on valuation issues.
