DST Systems Hires Merrill After Rejecting RDG Capital’s June Buyout Offer

DST Systems Inc. (DST), the software provider that rejected a June buyout bid from private-equity firm RDG Capital LLC, said it hired bankers to review its business.

DST, which is based in Kansas City, Missouri, and provides information processing and manages data for financial-services firms and other sectors, has retained Bank of America Merrill Lynch and Skadden, Arps, Slate, Meagher & Flom LLP to advise its board, it said in a statement today. Stinson Morrison Hecker LLP is providing legal advice.

DST has been approached by three other private-equity companies as it faces pressure to boost its share price, Russell Glass, founder of RDG Capital, said in June. The company, which previously said it wanted to stay independent, reported second- quarter earnings that missed analysts’ estimates as financial- service sales declined 3.3 percent and shareowner accounts serviced fell.

The company’s stock valuation doesn’t take into account its portfolio of public and private companies, or its real-estate investments, said Peter Heckmann, a Prairie Village, Kansas- based analyst with Avondale Partners LLC.

“The simple fact is that the public market is never going to give the company credit for these other assets,” said Heckmann in a telephone interview. DST should “go ahead and liquidate that $1.1 billion portfolio.”

Original Offer Stands

In today’s statement, DST also said it refused to sell Glass the company’s stake in State Street Corp. (STT), and rejected a proposal that he and two other people be added to its board.

Glass said today that he welcomes DST’s business review and that his June offer, “in the $60s” per share, still stands.

“We believe the company has a strong business with substantial asset value,” Glass said in a telephone interview. “However it doesn’t benefit from being a publicly traded company.”

Glass said he plans to contact DST in the coming days.

In a research note today, Heckmann said he believes the company is worth $62 a share as a public company and $75 in a buyout.

Nicholas Lamplough, a spokesman for DST at public-relations firm Joele Frank, Wilkinson Brimmer Katcher, declined to comment beyond the company’s statement.

Last month, DST reported earnings excluding some items of $1.05 a share. That missed an average estimate of $1.08 from a Bloomberg survey of analysts. Net income fell 41 percent to $55.2 million from the year-earlier period.

Record-Keeping Headwinds

DST faces headwinds as the company’s main business, providing record keeping and other services to mutual-fund companies, has shifted to brokerages, said David Koning, an analyst at Robert W Baird & Co. in Milwaukee. Koning has an “outperform” rating on the company’s shares, while Heckmann rates them “market perform.”

Total revenue declined 5.2 percent to $582.2 million during the second quarter and financial services operating sales fell $9.2 million, or 3.3 percent because of “lower shareowner processing and health-claims processing revenues,” the company said in its earnings statement. DST said total shareowner accounts serviced fell 1 million during the three months from the prior quarter.

DST rose $1.98, or 4.3 percent, to $47.89 at 4:02 p.m. in New York Stock Exchange composite trading. The shares have gained 8 percent this year.

To contact the reporter on this story: Zachary Tracer in New York at ztracer1@bloomberg.net.

To contact the editor responsible for this story: Tom Giles at tgiles@bloomberg.net.

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