Tex. Insurance Software Firm Buying Hogan For $192M

Hogan Systems Inc., a provider of software to many of the biggest banks in the United States and around the world, has agreed to be acquired by Continuum Co. for stock valued at $192 million.

Under terms of the deal, announced Monday, Continuum will exchange 0.355 share of its common stock for each Hogan share outstanding, amounting to a 14% premium over Hogan's closing price on Friday of $11.625.

On Monday, Continuum's shares closed at 36.875, down $3.75, while Hogan's were up 87.5 cents to $12.50.

The merger, scheduled for completion in February or March, would bring together leading technology forces in the insurance and banking industries. Continuum, based in Austin, Tex., develops software for large insurance companies. Dallas-based Hogan provides software and related services to about 130 major banks, and the two companies combined have 750 customers.

The pairing is the latest in a string of deals involving software firms that provide the technology nucleus for banks' back offices. Most recently, the computer services company Fiserv Inc. acquired Information Technology Inc. a developer of accounting systems for regional and community banks, for $365 million.

"We are delighted to join forces with another market leader and further advance the success of Hogan," said Michael H. Anderson, Hogan's chairman and chief executive, who is to remain in charge of the operation after the merger.

He described Continuum as "a company with a long-term commitment to extensive research and development of industry-leading software solutions and a demonstrated ability to grow profitably with the worldwide distribution infrastructure that is essential to our continued success."

Mr. Anderson also declared: "The Hogan legacy of superior banking products and services will continue."

Richard X. Bove, a stock analyst with Raymond James & Associates in Clearwater, Fla., who issued a report earlier this year predicting an imminent sale of Hogan, said the acquisition price was equitable.

"We figured Hogan's software business was worth three times their sales and their consulting business was worth about one and half times revenues, which came out to about $15 a share," Mr. Bove said.

Before the drop in its share price Monday, Continuum's offer was about $14.36 a share.

For the six months ended Sept. 30, Continuum had revenues of $194.5 million and net income of $16.4 million, or 83 cents a share. For the same period, Hogan had revenues of $51.1 million, with a net profit of $4.1 million, or 27 cents a share.

Diogo Teixeira, president of Tower Group, a bank technology consulting firm in Wellesley, Mass., said Hogan and Continuum are similar in that they provide large-scale systems to the largest firms in their respective markets and they "don't have a lot of competition in the high end of the application software market."

Continuum's major competitor is Policy Management Systems Inc., and Hogan vies with Alltel Information Systems, EDS Corp., and M&I Data Services.

Tower Group estimates Hogan has software installed in 15 of the 50 largest U.S. banks. Continuum officials said their customers include about half of the world's top 100 insurers.

"We see this as an exciting merger of two market leaders in different segments of the converging financial services industry," said W. Michael Long, chief executive officer of Continuum. "As the lines that differentiate insurance, banking, securities, and mutual funds blur, we firmly believe that technology will be the key to enabling financial services providers to effectively deliver the full range of financial products and services expected by their customers."

Mr. Bove agreed with Mr. Long: "Big banks are drooling to get into insurance, and this could make it easier for them."

But Mr. Teixeira was more skeptical about the possible synergies. "There's hardly anything similar when you look at the core accounting systems of insurance firms and banks," he said, adding that efforts by Congress to ease restrictions on banks selling insurance have stalled.

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