Monday, August 8, 2011
Payment software company S1 Corp. finds itself caught between the crosshairs of a friendly merger and a forceful acquisition. Negotiations over the outcome are turning decidedly hostile as S1's board of directors attempt to move forward with a $700 million all-stock merger with payment software company Fundtech Ltd. while fighting off a $540 million cash offer by payment software competitor ACI Worldwide Inc. to acquire S1.
The story began with the June 2011 announcement of S1's plan to merge with Fundtech. The tax free deal called for S1 shareholders to own 55 percent of the new company to be called Fundtech after a stock swap. The two companies, neither of which have any debt, estimate they will save $12 million annually beginning in 2012 through the merger.
"The companies have complementary product offerings and extensive cross-selling opportunities which will position the combined company to secure larger contracts and cultivate more strategic relationships with customers," stated Fundtech Chief Executive Officer Reuven Ben Menachem in the announcement of the proposed merger.
"The future of the transaction banking industry is highly dependent upon innovation and state-of-the-art solutions and this combination will put us at the forefront of these advancements," S1 President and Chief Executive Officer Johann Dreyer added. "This merger will expand our geographic footprint and enhance our ability to accelerate revenue growth and increase profitability."
The merger must still be approved by both companies' shareholders, regulatory agencies and Israeli courts. Fundtech noted in a recent release that "there can be no assurances that the closing conditions will be satisfied."
A month later, in July 2011, ACI Worldwide upset merger plans when it extended a $540 million cash offer to S1 amounting to $9.50 per share. This per-share cash offer was a 23 percent premium over the 52-week S1 stock high of $7.75 per share. The deal would allow S1 stockholders to take up to 40 percent of the buyout in ACI stock, tax free. The acquisition would leave S1 shareholders owning up to 15 percent of ACI.
"With S1, we believe that ACI would further enhance its current position as a global leader in the enterprise payments software industry as a larger, more diversified company that is strongly positioned in a wide range of markets and supported by a broader base of revenues and earnings," said ACI President and Chief Executive Officer Phillip Heasley at the time of the offer.
S1 immediately responded to the ACI proposal, saying in a press release, "S1 continues to be bound by the terms of the merger agreement with Fundtech." S1, however, agreed to study the ACI offer "in a manner consistent with its obligations under the merger agreement with Fundtech."
For its part, Fundtech issued a statement, saying flatly, "The merger agreement with S1 remains in effect."
S1 formally rejected the ACI offer in early August 2011. "The board unanimously concluded that pursuing discussions with ACI at this time is not in the best financial or strategic interest of S1 and its stockholders." S1's commitment to the Fundtech merger was reaffirmed in the press release announcing the decision.
"The S1 Board gave careful consideration to each of the proposed terms and conditions of ACI's proposal," stated John W. Spiegel, Chairman of the board of directors for S1, when he announced the board's decision to reject ACI. "We believe that continuing to execute on our long-term business plan, which includes the business combination with Fundtech, will best help us maximize stockholder value and achieve our strategic goals."
Rejected suitor ACI continues to pursue its original offer to buy S1, however. The company said in a press release immediately following the S1 rejection of its offer, "Today's announcement from S1 does not change our strong belief that ACI's $9.50 per share cash and stock proposal is superior to the Fundtech transaction."
ACI added, "ACI remains ready and willing to complete this transaction, and we are prepared to do what is necessary to make this happen."
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