Misys Plc (MSY), the U.K. software maker that failed to reach a deal to be taken over by Fidelity National Information Services Inc. (FIS) last August, is in talks to merge with Temenos Group AG (TEMN) of Switzerland.
Misys is in “preliminary discussions” with Temenos about a possible all-share merger, the London-based company said today. In a statement, Temenos confirmed the talks and said the company is “evaluating its strategic options.”
Temenos rose as much as 12 percent in Zurich trading. The Swiss company has been eyeing Misys’s financial software business and a merger of the companies, with a combined market value of $3.1 billion before today, would create the largest vendor of banking software, said Milan Radia, a managing director of research at Jefferies International Ltd.
“Misys is known to be for sale and it would have almost disappointed me if Temenos wouldn’t at least give it a try,” said Andreas Mueller, an analyst at Zuercher Kantonalbank in Zurich with a “market perform” rating on Temenos shares. “Such a combination makes sense if you look at the difficult banking environment, where these companies’ clients are themselves consolidating.”
Temenos shares rose as much as 2 Swiss francs and were up 8.4 percent to 18.65 francs as of 1:09 p.m. in Zurich. Misys declined 1.1 percent to 322 pence in London. The stock traded as high as 430 pence last year before Jacksonville, Florida-based Fidelity broke off talks to acquire the company.
Petra Shuttlewood, a spokeswoman for Temenos, declined to comment beyond the company’s statement. A Misys spokesman couldn’t immediately be reached for comment.
Misys had a market value of 1.09 billion pounds ($1.7 billion), while Temenos was valued at 1.24 billion Swiss francs ($1.4 billion) as of yesterday’s closing prices.
“There’s going to be a lot of product overlap,” said Vijay Anand, an analyst at Espirito Santo in London. “The future of the company will depend on whether they use Temenos’s product or Misys’s product and its most likely to be Temenos’s because it’s market leading.”
Misys makes software for cash, wealth and risk management as well as for syndicated lending, over-the-counter derivatives trading and post-trade processing. It has more than 1,300 banking customers. Temenos’s products include software for data management and payments, according to its website.
Sales at Temenos advanced 16 percent to $225.6 million in the six months ended June 30, while revenue at Misys, boosted by an acquisition, increased 22 percent to 197 million pounds ($312 million) in the half year ended Nov. 30.
Talks between Fidelity and Misys were close to an agreement last year but negotiations were called off after the two parties couldn’t agree on a price, a person familiar with the situation said in August. The latest merger talks may prompt other competitors to seek negotiations, Jefferies’s Radia said.
“If you’re a vendor in core banking, what you’re going to witness here is the creation of a massive, massive vendor with a huge installed base, and that would be competitively difficult to stomach for the Indian providers and some of the U.S. providers,” he said. “It will definitely give them some food for thought.”
Lazard & Co. advises Temenos, while Barclays Capital is acting as financial adviser to Misys.