A two-month trading halt on Phoenix International Ltd.’s stock was lifted last week, but the provider of client/server core banking systems may not remain on the Nasdaq much longer.

Phoenix has agreed to be purchased for approximately $45.5 million in cash by London Bridge Software Holdings PLC, a British company that specializes in customer relationship and credit risk management software. Publicly held London Bridge, which had revenues of $60 million last year, would roll Phoenix into a division that is no longer public.

The sale to London Bridge, which already had a 10% stake in Phoenix through a $5 million investment made in the first quarter, would solidify Phoenix from a financial standpoint, said Raju Shivdasani, the company’s president and chief operating officer. The deal was announced Oct. 25 and is expected to close in the first quarter.

Phoenix could use the capital infusion. Its stock has plummeted from almost $21 in May 1998 to $1.875 midday Friday. The seven-year-old Heathrow, Fla., company went public in 1996 and has failed to turn a profit in the past eight quarters, after four straight years in the black.

Phoenix was particularly hard hit in 1999 as banks focused on preparing their systems for year 2000, Mr. Shivdasani said. Revenues fell 24% and the company lost $15.7 million, compared with a $2.4 million profit in 1998.

A shareholder who requested anonymity said he was unhappy with the decision to sell. “They could sell stock to raise money” and “see how it goes for a year,” he said. “If sales were down because of Y2K, they could wait it out and see if requests for products would come back around. There is no upside for shareholders selling the company now.”

Mr. Shivdasani, who plans to leave the company after the sale, said: “Given how the stock price is depressed, any capital-raising efforts of any significance would have liquidated control anyway. Once you lose control you might as well look at divesting the entire business.”

Phoenix has had troubles besides lagging sales. Before resuming trading on Monday, Oct. 30, its stock had ceased trading on Nasdaq for more than two months as the company responded to a Securities and Exchange Commission request for reaudited financial statements for 1997, 1998, 1999, and first-quarter 2000. The new statements resulted in lower revenues and additional losses for those years.

And the question remains whether demand exists for client/server core banking software.

M. Arthur Gillis, president of the Dallas consulting firm Computer Based Solutions Inc., said: “Client/server companies have been pounding away for the last five or six years, and they haven’t been producing results.”

Mr. Shivdasani disagreed and said he believes that “a lot of bankers are starting to pick their heads up” and opt for client/server core computing. “We see a fantastic market opportunity. There are 8,000 financial institutions in the U.S. in our target market, and only 250 are now running on client/server systems.”

Carl Faulkner, a managing director at the technology consulting firm M One Inc., in Phoenix, said the client/server model lost its competitive advantage when longtime legacy vendors began to “blur the distinction” between their product and true client/server.

TWRAP in Tech

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