February 21, 2012 11:30 pm

Temenos and Misys look to agree merger terms

Temenos and Misys are expected to agree the full terms of their planned $2bn merger within days, according to people close to the deal, in an attempt by Temenos to stop rival bidders muscling in.

The two European banking software companies have already agreed key terms of a deal, which would see shareholders in UK-based Misys take 53.9 per cent of the combined group and shareholders in Switzerland-based Temenos take 46.1 per cent.

However, a rival offer for Misys emerged earlier this week from Vista Equity Partners, understood to be worth about £1.2bn. Vista is looking to combine Misys with the the former Thomson Reuters technology business, Kondor, which it recently bought. However, the Vista deal is understood to be at a very early stage.

Temenos, whose management team will take most of the key positions at the combined company, will be keen to secure an agreement quickly. It already has the support of ValueAct Capital, Misys’ largest shareholder for the deal, but other shareholders have not yet declared their intentions.

Temenos on Tuesday said the merger talks with Misys were continuing and “the parties will make a further announcement as and when appropriate”.

Full-year results from Temenos on Tuesday showed why the Swiss software company is keen to pursue a deal. Sales of software licences fell 33 per cent in the fourth quarter, as banks, spooked by the eurozone debt crisis, put spending plans on hold.

Temenos managed to offset this by selling maintenance work to existing clients, meaning that full-year 2011 sales rose 6 per cent to $473.5m, at the bottom end of analysts’ consensus estimates. However, pre-tax losses widened to $12m from a $400,000 loss in 2010.

“The sovereign debt crisis in Europe and its impact on funding markets put the banking sector back into a state of uncertainty. As a consequence, we saw decision cycles lengthen substantially with a corresponding impact on licence sales,” said Guy Dubois, chief executive of Temenos.

“When you look at the figures, they show the motivation pushing Temenos into this deal,” said Milan Radia, analyst at Jefferies. “Temenos shareholders are likely to be now more convinced about a combination with Misys. But Misys shareholders will be concerned they will be taking on someone else's issues.”

Temenos’s Mr Dubois is hoping that a combined group would be more resilient in a downturn, able to cross-sell products to each other’s customers, and with the credibility to win bigger banks as clients.

“There is potential to recognise very significant synergies,” said Mr Dubois, who would take on the role of chief executive at the merged company.

Misys declined to comment on the deal.

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