Sungard shares soar on news of takeover talks

22nd March 2005

SunGard (NYSE:SDS) A global leader in the provision of information availability services, has announced that it is in discussions with an investment consortium concerning a possible sale.

SunGard’s Board of Directors has authorized Credit Suisse First Boston and the law firm of Shearman & Sterling to commence discussions with the consortium. The consortium comprises Silver Lake Partners, Kohlberg Kravis Roberts, Carlyle Group, Bain Capital, Texas Pacific Group, Blackstone Group and Thomas H. Lee Partners.

These negotiations will be undertaken while the company continues to progress the planned spin-off of the company's Availability Services business, which was announced last Autumn.
The offer for the whole Business could total more than $10 billion and negotiations have apparently been underway for the last few months.

SunGard, which is based in Wayne, Pennsylvania, provides software and information availability services, as well as BC consulting to many of the worlds top financial companies. Representatives from the consortium were expected to have a conference call on Tuesday to complete details of its offer and could reach a deal by Thursday, executives suggested.

The consortium has tentatively agreed to pay about $35 a share for SunGard, they said. That represents about a 40 percent premium to the closing price of SunGard's shares on Friday, which was $24.95. The shares surged $6.12, or 24.5 percent, in heavy trading on Monday, to close at $31.07.

The talks were originally reported by The New York Post on Monday.

The potential deal comes just six months after SunGard announced its intention to split off its disaster data recovery business into a publicly traded company. SunGard's decision to split its software and business processing operation from the disaster data recovery unit, called Availability Services, made the deal under discussion possible, the executives said. The software unit accounts for about 60 percent of the company's total revenue, or $1.8 billion in 2003. It had operating income of $324 million that year.

SunGard, which employs more than 10,000 people, has long been viewed by many as a ripe takeover target but had been considered less attractive because its two businesses appealed to different organisations. One effect of the investment group approach may be to increase the likelihood of a company break up as the consortium seeks to maximise the return for the 40% premium placed on the share price.

Glenn Greene, an analyst at ThinkEquity has been reported as saying that “it was likely that the company's announcement of its plans to spin off its disaster recovery business had piqued the interest of outside investors and that this is what probably led the private equity firms to put together the deal," adding that "The fact that these are very credible investors in the deal suggests it's fairly far along."

Over the past year, he said, the company has focused on its plans for growth. The data recovery unit competes directly with International Business Machines (IBM) and Hewlett Packard (HP). The software unit, the bigger of the two, faces a more fragmented market. "SunGard plays in a lot of different markets," Greene said. "But they have the largest product breadth."

SunGard has announced that it does not intend to comment on any specific discussions or any potential transaction unless and until it enters into a definitive agreement with respect to a transaction. There can be no assurance that these discussions will result in any transaction for a purchase of the company. However the New York Times has reported that a deal could be close and expects news shortly, perhaps by Easter.

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