Fundtech Keen on S1 Merger, Mum on Rival Bid

Fundtech Ltd. executives stressed their commitment to a pending merger with S1 Corp. on Wednesday but gave no details on how a separate, competing proposal might affect the deal.

"The merger agreement between S1 and Fundtech remains in effect and we continue to execute under this agreement," Reuven BenMenachem, Fundtech's chief executive, said on an earnings conference call.

BenMenachem and other executives of the Jersey City, N.J., company would not answer questions about the stock-for-stock transaction, under which the two payments software vendors would combine operations and do business under the Fundtech name. But some analysts say ACI Worldwide Inc.'s unsolicited bid to acquire S1 for $540 million casts doubt over the likelihood of an S1-Fundtech combination.

"We continue to believe ACI Worldwide's … spoiling cash offer is increasingly interesting for [S1] shareholders," John Kraft, an analyst with D.A. Davidson & Co., wrote in a research report published on Wednesday. "We believe [S1's] board is keenly aware of its fiduciary duty, which unfortunately for [Fundtech], may spoil the creative 'merger of equals.'"

S1 executives on Tuesday said the Norcross, Ga., company's board of directors rejected ACI's bid and is committed to merging with Fundtech. ACI, of New York, responded by saying its $9.50 per share offer for S1 still stands and it is "prepared to do what is necessary to make this happen."

The combination of S1 and Fundtech would create a formidable player in the market for payments software technology, analysts say, which is why ACI is trying to complete its own tie-up with S1.

S1 sells online banking, cash management, payments processing and other software to large and small banks. Fundtech's specialty is in cash management and other platforms banks use to service corporate clients, including financial messaging, wire transfers and automated clearing house payments.

S1 has about 3,000 bank clients, including SunTrust Banks Inc. and BB&T Corp., in 75 countries. Fundtech has about 1,000 bank clients, including Deutsche Bank AG, Citigroup Inc. and Barclays PLC, in 70 countries.

By combining, the companies say they could expand their geographic footprint and cross-sell each other's products to existing and new customers.

The deal would be a boon to Fundtech, though it is not necessary for it to grow, according to Kraft.

"The company doesn't need to sell," Kraft wrote. Fundtech "is firing on all cylinders, has an excellent management team and business is accelerating."

Fundtech said Wednesday that its second-quarter revenue rose 16.4% from a year earlier, to $40.5 million, as it closed 130 new deals, including 20 new system sales, and added 14 new bank clients. In the preceding quarter, Fundtech closed 110 new deals, including five new system sales, and added four new bank clients, said Michael Sgroe, Fundtech's president and chief operating officer.

While some banks have been hesitant to spend money on new systems because of macro-economic conditions, Fundtech's sales "pipeline is diverse" and "strong across our product lines," Sgroe said on the conference call.

Fundtech said its net income for the quarter was $2.1 million, or 13 cents per diluted share, down from $2.4 million, or 15 cents per diluted share, a year earlier. Excluding stock-based compensation costs, expenses related to the pending merger with S1 and other costs, Fundtech's earnings of 27 cents per diluted share beat analysts' averaged estimate of 26 cents per share.