Uncertainty remains for clients of payments and banking software provider S1 Corp. despite its plan to stay the course on a proposed merger with Fundtech Ltd.
S1 on Aug. 2 said its board of directors rejected a $540 million takeover bid by rival ACI Worldwide Inc. (
But that does not mean the Fundtech merger is a sure thing or that ACI will relent on its efforts to acquire S1.
The shareholders of S1 and Fundtech still must approve the agreement. And ACI says it is committed to doing what needs to be done to get its deal through.
“I don’t think the story’s over,” John Kraft, an analyst with D.A. Davidson & Co., said in an interview. “I think what S1 has done is put the ball back in [ACI’s] court, and I don’t believe that [ACI] is going to end it.”
ACI likely is going to take the next step, perhaps by requesting a meeting with the S1 board or by bumping up the offer, he said.
Last week, ACI proposed paying $9.50 per share for S1, a 33% premium over its previous closing price, to thwart an S1-Fundtech combination (
In a statement on Aug. 2, ACI reiterated its “strong belief” that its existing offer “is superior to the Fundtech transaction.”
“ACI remains ready and willing to complete this transaction, and we are prepared to do what is necessary to make this happen,” the New York-based company said.
When contacted Aug. 2, a spokesperson for Jersey City, N.J.-based Fundtech did not comment immediately.
Gil Luria, a senior vice president with Wedbush Securities LLC, believes S1 should take ACI’s offer, unless it has something else in mind.
“As a capital markets professional, it’s my experience when a company receives an offer at a 30-something percent premium-to-share price, assuming it’s a bona fide offer, it’s usually the best idea to accept that offer,” he said in an interview. “But the management and the board have a different perspective than that. They believe they can increase the value to their shareholders to a larger extent by combining with Fundtech.”
For banks, vendor mergers always pose uncertainty because of the risk of platform termination and pricing changes in the future. In the case of S1, the situation is more confusing for clients because there are competing deals.
Executives of Norcross, Ga.-based S1 tried to dispel uncertainty during an Aug. 2 earnings conference call with analysts.
“We believe that continuing to execute on our long-term business plan,” which includes the Fundtech merger, will “optimize” shareholder value, Johann Dreyer, S1 CEO, said during the call.
S1 expects that it could complete the deal with Fundtech by the end of the year.
“In the meantime,” S1’s management team is “focused on continuing to provide the highest level of customer service and product innovation in the industry,” Dreyer said.
While S1’s statement may be comforting to some of its bank clients on the verge of buying decisions, it still is wise for bankers to consider potential outcomes carefully during contract negotiations, says Nicole Sturgill, a research director with TowerGroup.
“What they will want to know” is “what will happen to your platform once this acquisition takes place,” Sturgill says. “Is the point of the acquisition” to reduce “operational expenses, or is it because Fundtech has a platform that they’d prefer to use instead of S1’s platform?”
S1’s clients also are likely to be courted by other rival vendors’ sales executives looking to take advantage of their uncertainty, Sturgill says.
“Banks don’t like uncertainty as to their vendor’s identity,” Luria said. “They want to know who they’re buying from and who’s going to be there to provide support a year, two years, five years from now. They want to know who owns the company, who owns the product that they’re contemplating buying. That mostly would affect S1 customers.”
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