Misys and Temenos, its Swiss rival, are in talks about a possible $2bn merger that would create the world’s largest supplier of risk-management software to banks.
The UK group on Friday confirmed it was in preliminary discussions with Temenos about an all-share deal following constant market speculation over its future in recent months, which has pushed its share price up by nearly half.
People close to the deal said Temenos was likely to take just 45 per cent of the combined company but that Guy Dubois, Temenos chief executive, would become its CEO. Misys would appoint the chairman. The companies said there had been no agreement on terms.
A combined Misys/Temenos would have about 1,000 banks as customers, making it about four times larger than its closest competitors, the financial services arms of Infosys, TCS and Oracle.
But both companies, which have had a sometimes fractious relationship, have been hit by the squeeze on European banks’ spending amid pressures on profitability and delays to long-term IT investments.
At the same time, the financial industry is facing sweeping regulation on both sides of the Atlantic, which will require banks to maintain larger capital reserves, alongside greater transparency and tighter margin requirements for trading. Many banks admit they will need real-time monitoring of capital to meet the new rules, potentially benefiting companies such as Misys and Temenos, which can provide appropriate software.
Takeover talks between Misys and Fidelity National Information Services (FIS) collapsed last summer, but analysts said the Temenos talks could flush out a counterbid from competitors such as Infosys or TCS.
“There is more of a chance of them getting involved than when there were talks with FIS and Misys,” said Milan Radia, analyst at Jefferies. “A combined Temenos/Misys is much more dangerous a competitor to them.”
Others suggested that Misys had been, in effect, up for sale for six months but had attracted no bids. “Management would be unlikely to entertain talks with arch-rival Temenos unless they felt that other avenues were exhausted,” said David Toms, an analyst at Numis Securities.
Both companies have had internal reorganisations in recent months. Mr Dubois became chief executive of Temenos last July just before a profit warning. Misys has been digesting the 2010 acquisition of Irish rival Sophis for £235m but is coming towards the end of a five-year turnround plan under Mike Lawrie, its chief executive. He has been backed by ValueAct, a US private equity firm which is both a 22 per cent shareholder and his former employer.
Misys closed up 4p at 329.5p, giving it a market capitalisation of £1.1bn. Temenos rose SFr2.7 to SFr19.9, giving it a market capitalisation of SFr1.3bn. Temenos is being advised by Lazard and Misys by Barclays Capital.