FIS confirms approach for UK's Misys

BANGALORE/LONDON Thu Jun 23, 2011 11:20am EDT

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BANGALORE/LONDON (Reuters) - Payment services provider Fidelity National Information Services Inc (FIS.N) confirmed that it had approached Misys MSY.L with a deal, which analysts said could value the U.K.-based financial software company at $2.4 billion.

A deal with Misys -- a provider of software to banks, fund managers and traders -- could further beef up FIS' growing international operations and help it break out of its maturing U.S-focused market.

FIS, which has been on the lookout for deals abroad, reported $917 million in processing revenue from its international operations last year, accounting for nearly 17 percent of its total revenue.

"Misys is very strong in eastern Europe, Africa, the Middle East and parts of Asia," Matrix analyst Rajeev Bahl said. "Misys has a very strong installed base on the core banking side, and the deal gives FIS a route to market some of their products to those customers."

FIS, with a market value of about $9.5 billion, bought privately held Belgium-based Capco for $292 million in cash last year, adding a financial services consulting business to its offerings. [ID:nSGE69I0GO]

Misys on Tuesday disclosed that it had received a bid approach, without revealing the identity of the suitor.

The company -- which competes with Temenos (TEMN.S), FIS, Fiserv (FISV.O) and SunGard BAINSD.UL -- counts the world's top 50 banks as customers.

"The transaction could be nicely accretive to cash earnings," Robert W. Baird analyst David Koning said.

GOOD FIT FOR FIS

Analysts have said a deal could be struck at more than 450 pence a share, valuing the group at about 1.5 billion pounds ($2.4 billion). Misys shares have risen 8 percent this week, valuing the company at 1.4 billion pounds.

A deal with that price tag would mark the second major acquisition by FIS in the past couple of years.

In October 2009, Fidelity National bought peer Metavante Technologies for $2.94 billion.

Charles Stanley analyst Tom Gidley-Kitchin said it was "reasonable" to accept a price of 450 pence as a lower level, taking into account synergies and "rarity value."

"There are very few companies in Misys's niche that could offer the same sort of access and there would be significant revenue synergies," he said. "You'd be looking to value Misys on an acquisition basis, not in terms of its current value."

"We wouldn't be advising anyone to sell below 450 pence," he said. "It could well be higher than that."

Bahl said a price of 450 pence a share -- 26 times current year earnings and 21 times next year earnings -- was a premium to recent banking software deals.

FIS would need to take on a significant amount of debt to finance this deal, analysts say.

As of March 31, FIS, which serves more than 14,000 institutions in over 100 countries, had $384 million of cash and nearly $4.5 billion in long-term debt.

FIS itself was a part of a reported failed takeover attempt last year by a consortium led by private equity firm Blackstone Group LP (BX.N). Following which, the company authorized a leveraged recapitalization plan and repurchased about $2.5 billion of its common stock.

Analysts feel Misys' other competitors could also be interested in bidding for the company, but ruled out Temenos, a Swiss rival in retail banking software, saying the deal could be too big for the company.

"Fiserv is a possibility," Bahl said. "And SunGuard for similar reason as FIS - access to international markets."

"Those are the ones I would put on a white list."

(Reporting by Adveith Nair in London and Brenton Cordeiro in Bangalore, additional reporting by Anirban Sen in Bangalore; Editing by Matt Scuffham, David Cowell, Saumyadeb Chakrabarty)

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