ACI Announces a $540 Million Bid for S1, Casting a Shadow over S1’s Fundtech Deal

In a surprise development that has the potential to scuttle a merger agreement between payments-software firms S1 Corp. and Fundtech Ltd., ACI Worldwide Inc. on Tuesday announced a cash-and-stock bid valued at $540 million to acquire its Atlanta-based rival S1. If the deal is consummated, it will combine two companies with similar payment-processing software lines for electronic funds transfer switches, banks, and merchants.

In a press release, Elkhorn, Neb.-based ACI said its offer is “superior” to the S1-Fundtech deal, which was announced a month ago, in that it is “more favorable to S1 shareholders.” That obliges S1’s board to engage in talks with ACI, given the terms of the S1-Fundtech merger agreement, ACI maintains. S1 directors are bound to terminate the deal with Fundtech if they determine ACI’s offer is a better option, ACI officials said. “We are committed to making this transaction a reality,” Philip Heasley, ACI’s chief executive, told stock analysts during a morning conference call to announce the bid and review second-quarter results. He said ACI expects to close the deal in the fourth quarter.

Whether ACI’s bid came as a surprise to S1, and whether S1 agrees with ACI’s interpretation of the S1-Fundtech agreement, could not be immediately determined. Officials with S1 and Fundtech could not be reached for comment. In the conference call with analysts, Heasley refused to say whether ACI discussed its offer with S1 before Tuesday. “We can’t discuss what took place or didn’t take place prior to this morning,” he said.

In its proposed deal, ACI would pay approximately $9.50 per share for all of S1’s outstanding stock, with 60% of the payment coming in cash and 40% in ACI stock. The offer values S1 at a 33% premium over its closing price on Monday. Under the S1-Fundtech merger agreement, valued at $700 million at the time, Fundtech shareholders are to receive 2.72 shares of S1 common stock for each Fundtech share, leaving S1 shareholders with a 55% stake in the combined entity. The deal, which company officials also expect to close in the fourth quarter, calls for the new company to be rechristened Fundtech Corp. and to be based at S1’s headquarters in Atlanta. Fundtech is currently based in Jersey City, N.J.

If it succeeds in acquiring S1, ACI would push its market share in payments software from about 5% to about 8%, the company estimates. 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.

But the biggest advantage to ACI could be that it would squelch competitive pressure from S1, says Aaron McPherson, practice director for financial services at IDC Financial Insights. He points out the product lines of the two companies are “fairly duplicative.” This is unlike the proposed merger, in which the Fundtech side, which specializes in software for wholesale banking, would gain S1’s position in retail payments, he says. “This is mainly [about] taking out a competitor,” he says of the ACI offer. “But that’s not a bad reason to do it,”