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Misys in merger talks with Swiss rival Temenos but news disappoints speculators

Company in preliminary discussions about all-share merger, but City says rival bid could be flushed out

IT group Misys has been in the spotlight again in recent days as a possible takeover target, with traders suggesting a new move from US group Fidelity National Information Systems (FIS) which has already walked away once.

But an announcement that the company is in fact in merger talks with Swiss rival Temenos has caught speculators on the hop. Misys said it was in preliminary talks with the Swiss about an all share merger, although there was no guarantee a deal would be completed.

Disappointment that it was not a bid complete with a premium has sent Misys shares 2.5p lower to 323p, even though some are hoping the news will indeed flush out another predator. George O’Connor at Panmure Gordon said:

It was probably someone in corporate finance who cooked this one up – Temenos wants to expand in the US (Misys has a slim 18% of revenue there) and Misys wants to do ‘something’ (Temenos is something). Operationally the phrase ‘buggers muddle’ springs to mind in terms of the difficulties in banging these two businesses together – however this likely translates in capital markets speak to ‘cost synergies and ‘products dovetailing into each other’.

Bulls will suggest that FIS will use this to counter-bid Misys at 450p or so – more likely FIS is watching squeamishly from the isles. To reflect bid premium we ratchet up our target price to 385p from 334p and move from hold to buy – we are not going to stand in the way of the party – however the risk is that the vague counter-bid rumours (FIS again) push the price higher; consequently, we would therefore take profits north of 400p.

Julian Yates at Investec was also unconvinced and wondered about the timing of the deal:

In the past this deal would have made sense. Misys did not have a credible next generation core banking product, but had a large installed base. Temenos had a leading product, but not the deep customer base.

However at last Misys has the new competitive bank fusion offering and early take-up signs are very positive. On this basis the benefits of merging with Temenos are not as clear cut as they were previously and as such it seems strange timing for Misys to ‘need’ to merge. However there will likely be potentially material cost savings and current trading may be pressuring both companies to talk.

Due to the very early stages of these announcements, it seems to us that there is a prospect that another bidder may come into the fray. A cash offer would surely be more attractive to shareholders. © 2012 Guardian News and Media Limited or its affiliated companies. All rights reserved. | Use of this content is subject to our Terms & Conditions | More Feeds