August 4, 2011 9:20 am

Fidelity severs takeover talks with Misys

Fidelity National Information Services, the US payment processing group, has walked away from its takeover approach for Misys, sending shares in the UK software provider tumbling almost 19 per cent.

The two companies had been in talks since late June when Misys confirmed that it had received an all-cash preliminary approach from Fidelity that valued the British group at £1.4bn ($2.27bn).

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On Thursday, Misys said that the bid talks had been severed by Florida-based Fidelity, which provides technology services to roughly 14,000 clients in the financial sector across more than 100 countries.

Fidelity said it would instead begin buying back its own shares under an existing repurchase programme.

Frank Martire, Fidelity chief executive, said a buy-back would be a “very attractive use of capital at this time”.

Misys shares closed down 18.7 per cent at 291.3p – well below the 384.5p that they were trading at before Fidelity’s approach. Fidelity shares were flat at $28.72.

Analysts said the withdrawal of the bid reflected tougher trading in the financial software market in the past few months.

Temenos, Misys’ Swiss rival, was forced to issue a profits warning last month as banks grew cautious on spending.

Milan Radia, an analyst at Jefferies, said Fidelity might have been looking to renegotiate the price as market conditions grew tougher, and its ability to raise money from the deal may also have been constrained by tougher debt markets.

Last week, Misys received a revised non-binding offer from Fidelity, which its board unanimously rejected as “materially undervaluing the company”, prompting it to withdraw from further discussions.

However, Fidelity refused to increase its offer and did not offer a reason for walking away, but reserved the right to reinstate its offer should the board of Misys reconsider.

“There are no other bidders for Misys at this stage, and we expect this process would have flushed out any other interest,” said Rajeev Bahl, analyst at Matrix.

Misys on Thursday shrugged off the offer withdrawal, telling the Financial Times: “We are confident about the future of the company. It’s back to business as usual.”

Last week Misys, whose core banking unit has a 1,200-strong customer base, announced a 4 per cent increase in full-year revenues to £370m, and a 12 per cent increase in underlying profit to £72m. Excluding exceptional items, pre-tax profit fell from £45m to £32.2m.

In spite of being the target of a takeover approach, Misys has continued to look for bolt-on acquisitions itself, considering a possible bid for Kondor, the Thomson Reuters trade and risk management software business.

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