S1 Corp. has sold one of its units, but the transaction may not satisfy the activist shareholders who have been pressuring the banking technology vendor to sell itself.
The Atlanta company said Monday that it had sold its Financial Reporting Solutions to the Washington investment firm Carlyle Group and to the London technology investor Kennet Partners Ltd. for $38 million in cash. After fees, S1 expects to net at least $30 million from the transaction.
The sale closed Friday, S1 said in a filing with the Securities and Exchange Commission. By midday Monday its stock had risen 4.68%, to $4.25.
Some observers had predict the sale when S1 listed FRS as a discontinued operation last week in its second-quarter earnings report.
The pressure to sell S1 began in March and has been spearheaded by Ramius Capital Group LLC, which said it was leading a shareholder group that owned 7.2% of S1's shares. That figure quickly jumped to 9.2%, and Ramius demanded that it be permitted to nominate someone to S1's board.
In May, S1 accepted a Ramius managing director, Jeffrey C. Smith, as a board member.
Though James C. "Chip" Mahan 3rd, S1's founder, chairman, and chief executive, has long said that he had no interest in selling the company, accepting Mr. Smith as a board member seemed to indicate that Mr. Mahan was at least considering a sale. Shortly afterward S1 announced that it had retained Friedman, Billings, Ramsey Group Inc. and the law firm Hogan & Hartson LLP as financial advisers, and that it was exploring "strategic alternatives."
Neither S1 nor Ramius returned calls Monday.
Some observers have said S1 may be trying to buy time to improve its financial condition and demonstrate it can function independently. This month it reported that second-quarter revenue rose 8% from the first quarter but fell 1.6% from a year earlier, to $46.7 million. It also reported a net loss of $2.1 million, versus a profit of $2.3 million a year earlier.
John Kraft, an analyst with the investment firm D.A. Davidson & Co. of Great Falls, Mont., said that even though he expected the FRS sale, "it was a pleasant surprise to see the S1 unit go, first of all so quickly, and second of all for more than what I was expecting it to get."
He expected the unit to sell for an amount close to the nearly $25 million it generated in revenue last year .
However, Mr. Kraft said that selling the unit is not likely to appease the investors that want S1 to sell itself, and it does not indicate the vendor is more likely to do so.
"We just don't know, behind the scenes at the board level, whether there's major disagreement anymore," he said. The publicly visible part of the fight "is over, with giving Ramius the board seat."
Larry Berlin, an analyst for First Analysis Securities Corp. in Chicago, predicts that the pressure from Ramius "will not abate too much" and will be directed most immediately at the $30 million S1 received from the sale.
"It's a lot of cash to be carrying around," Mr. Berlin said. "This amount of cash increases the pressure to do something," such as pay a dividend to shareholders or buy back stock. Either action likely would increase S1's share price.
"Nothing's wrong with having a lot of cash on your sheets, but when it's a lot more than you need, then people feel it belongs with the shareholders, rather than with the company," he said.
Though it was not a unit S1 put in the spotlight often, FRS was one of the vendor's strongest businesses, Mr. Berlin said.
"It was growing faster than the company" - last year the unit's revenue rose more than 17% - "but on the other side of the coin, it wasn't core," he said. "S1 focuses on the front end; this is a back-end product."
In the future "there's always a chance that they'll sell something else," Mr. Berlin said, though such a sale would have to keep in line with S1's strategy of selling units not connected to its flagship software.
