Keycorp asks shareholders to accept Archer offer

Archer's offer a 42 per cent per share premium

Payments technology group Keycorp (ASX:KYC)is pushing for its shareholders to accept a cash offer from Australian private equity firm Archer Capital which has the potential to lift the struggling company.

Keycorp provides many different sorts of technology associated with payments — such as EFTPOS terminals, bank branch technologies and so on, and is well-known in the Australian market — being established in 1983, at which point it was making advanced secure keyboards.

However, the company’s fortunes have been up and down over the years. In 2008 Keycorp sold its smart card business, and earlier this year Keycorp confirmed its software had been behind outages suffered by both Bank of Queensland and Bankwest.

Keycorp’s recent financial results show the company brought in net profit after tax of $5.5 million over the past year, a figure down from $9.2 million the previous year. In addition, revenue was also down — from $52.1 million to $46.6 million.

The company’s management hailed the result — which despite the shrinkages it said was better than in previous years — as a consequence of its turnaround plan for the company.

Under Archer’s offer, Keycorp shareholders will receive 58c per share, which Keycorp’s management said in a statement represented a substantial premium of 42 percent to the underlying enterprise value of Keycorp of 19c per share — which represents the market capitalisation of Keycorp less net cash. The offer also represents a slight premium of 14.9 percent to Keycorp’s closing price earlier this week before the company went into a trading halt.

“Archer has a longstanding interest in the payments sector and is attracted to Keycorp’s leading position in the Australian EFTPOS market, its high quality management team and its considerable potential for future organic and investment-driven growth,” Keycorp’s statement this morning read.

Archer has previously been active in Australia’s technology sector. For example, the company acquired local accounting software house MYOB in January 2009.

Keycorp chief executive Joe Bonin said that over the past 18 months, the company had examined “numerous options” to better address what he said were the requirements of significant business growth and preservation of shareholder value for the company.

“We believe Archer’s strong financial position and longer term view provides a more appropriate capital structure to support growth via acquisition that will benefit Keycorp’s customers, employees and partners — more than is achievable under the current capital structure and small market capitalisation,” he said.

Keycorp will hold a shareholder meeting to approve the scheme of transaction in November. Keycorp has engaged law firm Middleton as well as corporate advisors Ironbark and SLM Corporate, while accountancy Grant Thornton will prepare an independent expert’s report on the deal.