LONDON Investor ValueAct Capital and private equity firm CVC have teamed up for a potential cash bid for Misys MSY.L, the British banking software firm whose plan to merge with a Swiss rival has been poorly received by some investors.
ValueAct, the biggest shareholder in Misys, with a 21.5 percent stake, had initially supported the company's plans to merge with Switzerland's Temenos (TEMN.S), but said it was now having second thoughts.
Jeffrey W. Ubben, CEO and founder of ValueAct, said: "The proposed Misys and Temenos all-share merger has strategic logic but after further consideration we have decided to evaluate whether we can make an alternative proposal that provides the certainty of cash upon completion."
The merger talks had already triggered interest in Misys from private equity firm Vista Equity Partners on February 20, with reports saying it was considering an offer of around 360 pence a share.
Misys said on Monday it had started discussions with ValueAct and CVC about a cash deal, while it was continuing talks with Vista Equity Partners and Temenos Group.
Shares in Misys, which fell 8.5 percent the day after the Temenos deal was announced, were up 7 percent at 338 pence by 0937 GMT. Temenos was down 4 percent.
Misys said it had formed an independent committee of directors, excluding Jeff Ubben, to consider the proposals.
The British company, which provides software to banks and financial firms in treasury and capital markets, and Temenos have until 1700 GMT on Tuesday to announce a formal merger agreement under British takeover rules.
The deal as outlined will see Misys take 53.9 percent of the equity, but Temenos's chief executive and chairman would lead the management team.
The two groups are looking to join together in response to weak demand from banking sector customers, highlighted by a 15 percent drop in fourth-quarter revenue at Temenos as license sales slumped 33 percent.
A source close to the deal said talks with Temenos were continuing and the logic behind the tie-up remained.
Analyst Roger Phillips at Merchant Securities, however, said Monday's announcement was "fresh evidence that a Temenos/Misys merger represents the worst possible outcome, at least from ValueAct's perspective."
He said CVC was a much more likely bidder than Vista, which had a proclivity for smaller deals.
"The market will speculate that the potential exit price could now be closer to 400 pence than the 360 pence level," he said.
Deutsche Bank is advising CVC on the potential offer, while Vista is being advised by Goldman Sachs.
Barclays Capital and JP Morgan Cazenove are working for Misys, while Lazard and Morgan Stanley are on the Temenos side.
(Editing by Adveith Nair)