Selling itself to a group of private equity firms, as it seems to be trying to do, could scuttle SunGard Data Systems Inc.'s plan to spin off its disaster-recovery business, analysts say.
Andrew W. Jeffrey, an analyst at Needham & Co., predicted that the private equity firms "absolutely" would cancel the spinoff of the SunGard Availability Services unit.
SunGard Data, of Wayne, Pa., confirmed Monday that it was "in discussions concerning a possible purchase of the entire company," after a report was published that morning that it was in buyout talks with a group of companies, including Silver Lake Partners, Texas Pacific Group, and Thomas H. Lee Partners LP. According to the published report, the price would top $10 billion.
Last year SunGard Availability Services generated 34% of its parent's $3.55 billion of operating revenue and 54% of its $703.4 million of operating income, according to the 2004 annual report. The other main unit develops transaction-processing systems for equities and debt.
In October, SunGard Data announced plans to spin off the disaster recovery business. It originally said the transaction could close this month, but last week it said in a regulatory filing that it would close next quarter.
"Clearly, private equity would need the cash flows from the SAS business to service the debt," Mr. Jeffrey said.
In fact, he said he opposed the idea of breaking up SunGard from the start. "In my view, the spin was an ill-conceived vehicle" for maximizing shareholder value.
SunGard in its press release that it is proceeding with the spinoff.
Fidelity National Financial Inc. of Jacksonville, Fla., the nation's largest title insurance company, was involved in a similar case with Texas Pacific and Thomas H. Lee. In December, Fidelity National shelved plans to spin off its Fidelity Information Services Inc. unit, when Texas Pacific and Thomas H. Lee agreed to pay $500 million for a 25% stake in the unit.
Since then Fidelity National has said that it still plans a public stock offering for the unit, but not for two to five years.
A similar outcome might be in the cards for SunGard. Mr. Jeffrey, said the buyers could eventually sell one or both of the units, but it would not happen in the short term.
