By Going Directly to S1’s Shareholders, ACI Hopes to Scuttle Fundtech Deal

ACI Worldwide Inc.’s effort to acquire rival payments-software firm S1 Corp. took a more hostile turn on Monday when ACI said it will go directly to S1’s shareholders, asking them to scuttle a proposed merger between S1 and Fundtech Ltd. The move by Elkhorn, Neb.-based ACI, spelled out in a filing of preliminary proxy materials with the Securities and Exchange Commission, comes nearly two weeks after S1’s management rejected a $540 million cash-and-stock offer from ACI. S1 spurned ACI in favor of its own offer, announced in June, to buy Jersey City, N.J.-based software firm Fundtech in an all-stock deal valued at $700 million.

While not unusual, the proxy solicitation directed at S1 shareholders by ACI is nonetheless an exceptional circumstance aimed at pre-empting a shareholder vote on the Fundtech deal set for Sept. 22, says Eric Grover, principal at payments consultancy Intrepid Ventures. “It’s a hardball tactic,” he notes.

ACI management first approached S1 about a possible deal a year ago, according to the SEC filing, and it has recently indicated its determination to complete an acquisition of the Atlanta-based company. “We are committed to making this transaction a reality,” Philip Heasley, ACI’s chief executive, said at the time ACI made its offer late last month.

Nonethess, S1 officials remain steadfast in their opposition to ACI’s overture. \”The S1 board of directors urges S1\'s stockholders to disregard ACI\'s voting recommendations and vote for all of the proposals associated with the combination with Fundtech when they receive S1\'s proxy solicitation material,” the company said in a statement released on Monday. “S1\'s board believes that the combination with Fundtech will establish a strong platform to accelerate revenue growth, increase earnings, and generate significant value for stockholders.” A Fundtech spokesperson said the company had no comment on the matter.

In a statement released to announce the SEC filing, ACI says that by voting “no” on the Fundtech deal, S1 shareholders will keep open their option to receive a “premium”price for their holdings. The ACI offer, at $9.50 a share, represented a 33% premium to S1’s share price at the time of the offer. ACI also argues its deal would lead to greater value creation and cost savings than the merger with Fundtech, and prevent a “radical restructuring” of S1’s business with no “premium or cash” flowing to S1’s shareholders.

By becoming part of S1, wholesale-banking specialist Fundtech would gain access to S1’s base of business in processing software for consumer banks and retailers. A combination of S1 and ACI, by contrast, would bring together two companies with similar product lines, including systems for electronic funds transfer switches, merchants, and banks. ACI estimates that by acquiring S1 it would boost its market share in payments software from 5% to 8%. It would also gain a foothold with retailers outside North America, extend its reach in online banking globally, and pick up a new customer base among community banks.

“Fundtech is pretty complementary [to S1] and [an S1-Fundtech deal] creates a much more formidable competitor to ACI,” notes Grover. For ACI, on the other hand, “acquiring S1 isn’t complementary but it eliminates a competitor,” he says.