March 12, 2012 / 1:55 PM / 7 years ago

Temenos walks away from Misys merger

ZURICH/LONDON (Reuters) - Swiss software company Temenos (TEMN.S) pulled out of merger talks with rival Misys MSY.L on Monday, leaving the British firm, which is struggling with a sharp fall in demand, relying on two approaches from private equity to secure a deal.

Misys said it was pursuing a possible cash deal with Vista Equity Partners or a rival private equity combination of CVC Capital Partners and ValueAct Capital.

Banking software specialist Misys, whose clients have tightened their purse strings, has been up for sale at least since a separate merger approach failed last summer, according to analysts. It is seeking a partner to help it cut costs and boost revenue.

Temenos won more time last week to prepare its all-share merger but said on Monday the two companies could not reach an agreement. It could still return to the table if another bidder makes a firm offer.

A source close to the talks said Temenos still believed it made sense for the two groups to combine - both of them are suffering from weak demand from the banking sector - but that the Swiss group had run of patience.

“Although Temenos believes there is major upside from a combination, it is very disciplined in how it evaluates opportunities and could not agree satisfactory terms in a reasonable timescale,” the source said.

Shares in Misys fell 2.5 percent to 332.5 pence by 1204 GMT, while Temenos was down 4.3 percent to 15.50 francs, making it the worst performer in a flat Swiss midcap index .SMIM.

Analyst George O’Connor at Panmure Gordon said he was not surprised Temenos had walked away.

“The bid was less attractive to shareholders given, in our view, that the combo could not afford a cash ‘sweetener’ and as the operational reality struck home, the difficulties became more real, and the deal did little to help Temenos in its expansion in the United States,” he said.


Questions remain about the prospect of a bid from private equity, analysts say, despite the field narrowing with Temenos’ withdrawal.

Roger Phillips at Merchant Securities said he was skeptical about Vista’s intentions, as buying Misys would not be in line with the size of its previous deals.

“We think it is more likely that Vista, as the new owner of Kondor (the risk management software business it bought from Thomson Reuters (TRI.TO) last year), is taking a look under the hood of a competitor,” he said.

He also said ValueAct-CVC was curious, as ValueAct, which holds a 21.5 percent stake in Misys, had backed the group’s chief executive Mike Lawrie, who announced his departure after unveiling the Temenos deal.

However, Phillips noted that the structure of any deal with CVC was unknown.

Vontobel analyst Panagiotis Spiliopoulos said it was a sign of Temenos’s strength that it was walking away and was not prepared to do a deal at any price.

“The termination of merger talks marks an important inflection point for Temenos,” he said in a note, reaffirming his “buy” rating and 21 Swiss francs price target for the company.

Misys and Temenos announced on February 3 they had begun talks and four days later said they had agreed on the key terms of the deal, which would see Misys take 53.9 percent of the equity but the Swiss company’s chief executive and chairman leading the management team.

The talks then triggered a rival approach for the British firm from specialist private equity company Vista Equity Partners, and later a joint approach from ValueAct, Misys’ largest shareholder, and private equity company CVC.

Vista has until March 19 to make a firm bid, unless an extension is granted, while CVC and ValueAct have until April 2.

In February, the Financial Times reported that Vista was eying a 360 pence per share bid, valuing Misys at about 1.2 billion pounds ($1.9 billion).

Some analysts have questioned that number, however, and there has been speculation the CVC-ValueAct combination was looking at a 325 pence a share bid in order to put a floor under the Vista proposal.

The Temenos-Misys all-share merger plan valued Misys at about 918 million pounds, according to both companies’ share prices on March 5.

($1=0.6372 British pounds)

Editing by Mark Potter and Elaine Hardcastle

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