Bisys Group Inc. has received a pair of downgrades after its chief executive announced he was leaving and the company put itself on the block.
The New York financial processor announced Thursday that it had hired Bear, Stearns & Co. to explore its strategic alternatives, in conjunction with the decision of Russell P. Fradin, its president and CEO since February 2004, to become chairman and CEO of Hewitt Associates Inc., a human resources company.
Robert J. Casale, Bisys' chairman, was named interim president and CEO. The company also said it would probably be late filing its report for the fiscal year that ended June 30. It has not filed financial statements for its third quarter, and did not file its second-quarter report until this month.
Wall Street reacted harshly. Shares of Bisys fell 22.3% Friday, to $9.26, and an analyst who downgraded it said it would have difficulty completing a sale. The shares had rebounded 0.11% by midday Monday, to $9.27.
Timothy W. Willi, an analyst with the St. Louis brokerage A.G. Edwards & Sons Inc., Bisys' stock Monday to "hold" from "buy." Though he expects the company to sell, he said that a deal is likely the only factor that could give Bisys" shares a lift, and "in general, we don't recommend names where the sole driver of upside is going to be a possible takeover or sale."
Gregory W. Smith, an analyst at Merrill Lynch, cut his recommendation on Bisys Friday to "neutral" from "buy" and reduced his estimate on fiscal 2007 earnings to 57 cents a share from 73 cents.
"We believe the lack of current filings will delay a potential sale," Mr. Smith wrote in a note to clients. "In addition, the company's two major business lines have little strategic fit and it may therefore be difficult to find a single buyer for both businesses. Finding two buyers and then structuring separate sales of each business would likely entail a complex, time-consuming transaction."
Bisys provides administrative services to mutual funds and markets life insurance and commercial property/casualty insurance. In March it sold a third business unit, outsourced bank processing, to Open Solutions Inc. of Glastonbury, Conn. That $470 million deal was delayed twice while Bisys worked on accounting issues in other parts of its business.
Mr. Fradin had accounting headaches almost from time he joined Bisys. In his first quarterly call with analysts, he announced the company was taking a $24.7 million charge to correct commission overestimates in its life insurance business.
Since then Bisys has faced other irregularities in its mutual fund and insurance businesses and investigations by the Securities and Exchange Commission and the New York attorney general.
Bisys reported that net income fell 11.4%, to $22,257, in its fiscal second quarter, which ended Dec. 31. It was the last full quarter that included results from its bank outsourcing unit. Revenue fell 3.8%, to $207.3 million, compared with the year-earlier quarter.
Bisys said last week that Mr. Fradin's departure means the company probably will not be able to provide timely certification of its fiscal 2006 financial results.
Mr. Fradin is to join Hewitt on Sept. 5. He will succeed Dale Gifford, 56, who announced his retirement in June.
Mr. Gifford had been the Lincolnshire, Ill., company's chairman and CEO since 1992. He will remain with the company through the end of September.
A spokeswoman for Hewitt said it continues to search for a successor to Bryan J. Doyle, 45, the president of its human resources outsourcing business, who resigned his posts with the company and its board of directors to pursue other opportunities on the same day Mr. Gifford resigned.
Julie S. Gordon, Hewitt's chief business excellence officer and a director since 2000, has been the acting president of the human resources outsourcing business since Mr. Doyle resigned.
A Hewitt spokeswoman said there was no connection between Mr. Gifford's retirement and Mr. Doyle's resignation.
Hewitt has been the largest human resources outsourcing company since October 2004, when it bought Exult of Irvine, Calif. Hewitt controls 35% of the market, according to Technology Partners International Inc.
