The conflict between S1 Corp.'s management and an unhappy investment group reached a turning point Monday, with a buyback offer and the departure of S1's chief executive.
The online banking technology vendor announced Monday that James S. "Chip" Mahan 3rd, one of its founders, has retired from his roles as chairman, director, and CEO. John W. Spiegel, a director, has replaced Mr. Mahan as chairman. S1 did not name a new CEO but said it would start looking for one immediately.
It also said it would seek to buy back 15% of its outstanding common stock for about $55 million, using a Dutch auction format. This would enable S1 to give a price range it would pay for the shares, and would enable shareholders to list the price within that range for which they are willing to sell.
The Atlanta company said it would pay $4.75 to $5.25 per share. Its shares have been trading at close to that range for several months after hitting a 52-week high of $5.96 in March and a 52-week low of $3.80 in May.
S1 said in a press release that these actions have "completed the review of strategic alternatives" that it announced in May. That decision was made in large part to appease Ramius Capital Group LLC, a New York investment management firm that owns nearly 10% of S1's shares and has been pressuring S1 to sell itself. S1 and Ramius declined to be interviewed for this article.
In March, Ramius said it was leading a shareholder group that had bought 7.2% of S1's shares; it quickly raised that amount to 9.2% and began to seek a majority voice on S1's board. In May, S1 agreed to explore strategic alternatives and to accept a Ramius managing director, Jeffrey C. Smith, to its board.
Larry Berlin, an analyst for First Analysis Securities Corp. in Chicago, said that a Dutch auction can achieve the same result as selling the company: "it returns cash to the shareholders, probably reducing pressure" to further explore a sale. Shareholders who keep their shares after the auction can expect them to go up in value by about 15%, he said.
Mr. Mahan had said all along that he opposed a sale, and Mr. Berlin said that his departure could make it easier for Ramius to push its own agenda, including pressuring the board to find a new CEO who specializes in rebuilding or selling companies.
John Kraft, an analyst with the investment firm D.A. Davidson & Co. in Great Falls, Mont., said it makes sense for S1 to buy its shares. "The Dutch auction is not a surprise, in the sense that there's been a lot of cash on the balance sheet and a lot of folks have been clamoring for a buyback of some sort," he said. "This was bound to happen."
However, he also said that the buyback makes a sale less likely. The chance of a deal was one of the factors propping up the stock, and the share price fell in reaction to the news that S1 had opted to pursue a stock repurchase instead. By Monday afternoon it was trading at $5, down 3.29% from Friday's close.
Chris Penny, an analyst at Friedman, Billings, Ramsey & Co. Inc., wrote in a research note issued Monday that the news was "a mild disappointment for shareholders" since it shows "a lack of interest at a higher stock price that the company would be willing to accept."
Though the shareholders who bought S1 stock in the past year may profit from the buyback, "many investors still own the stock at a higher price than this and may be disappointed," he wrote.
