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DST-SS&C Merger to Close Early, Gets Shareholders' Approval

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Stock Market News For Nov 16, 2018

Wall Street finished in the green reversing its five-day negative trend on Thursday following news that United States and China have ramped up their efforts to resolve lingering trade disputes

The merger deal between DST Systems, Inc. DST and SS&C Technologies Holdings, Inc. SSNC is likely to be accomplished earlier than anticipated. Last week, DST Systems confirmed that the transaction is anticipated to close in April or May this year instead of the earlier projection of third-quarter 2018.

This is because the two parties have received shareholders’ as well as all antitrust approvals, including the early termination of waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976.

Notably, earlier this January, the companies entered into a definitive agreement wherein DST Systems agreed to be acquired by SS&C Technologies. Per the deal, SS&C Technologies will pay $84 for each share of DST Systems. It is valued at $5.4 billion, which also includes DST Systems’ debts.

Credit Suisse Group AG and Morgan Stanley are acting as financial advisors for SS&C Technologies, while BofA Merrill Lynch is the advisor for DST Systems.

Immediately Accretive to SS&C’s Financial Performance

The key rationale for SS&C Technologies behind this transaction is that the company’s products and services go well with that of DST Systems’. The company is a leading provider of specialized technology, strategic advisory, and business operations outsourcing to the financial and healthcare industries. On the other hand, SS&C Technologies delivers investment and financial management software, and related services focused exclusively on the financial services industry.

Therefore, the acquisition is believed to expand the company’s capabilities in the U.S. financial market and provide a gateway into healthcare industries. SS&C Technologies, in its press release, stated that this combination will generate approximately $3.9 billion of revenues and 13,000 clients.

This apart, the acquisition will have cost synergies and will be immediately accretive to SS&C’s earnings per share (EPS). The company noted that the transaction will bring in about $150 million in annual cost savings by 2020 and is anticipated to result in mid-teen EPS growth in 2019.

Best Option for DST Amid Challenging Situation

Due to the ongoing merger transaction, DST Systems did not hold any conference call for the last reported quarter. So, we don’t have clarity about the position of registered accounts.

It should be noted that prior to fourth-quarter 2017, the company’s financial results had been affected by sustained decline in registered accounts, changing government policies and escalating operating expenses, thereby putting its fundamentals under pressure.

Although, the company’s fourth-quarter revenues surged approximately 50% year over year, but that was mainly due to the acquisition of the remaining portion of Boston Financial Data Services ("BFDS") and International Financial Data Services U.K. ("IFDS U.K."), which generated $179.7 million of additional operating revenues during the quarter.

However, the company had reported disappointing results for third-quarter 2017, affected by client migrations, reduction in membership and decline in healthcare technology spending resulting from changes in government policies.

Moreover, DST Systems’ costs and expenses continue to flare up. In the fourth quarter, the figure soared 62% from the year-ago quarter to a hefty $481.3 million. This, in turn, puts pressure on the company’s margin. Operating margin contracted 590 basis points on a year-over-year basis to 13% in the quarter.

Therefore, the combination of its businesses with SS&C Technologies will be in the best interest of DST Systems’ shareholders as the transaction will enhance the combined companies’ capabilities, market share and generate cost synergies, thereby driving earnings and revenues.

DST Systems, Inc. Price

DST Systems, Inc. Price | DST Systems, Inc. Quote


Bottom Line

In our opinion, the transaction is a win-win situation for the companies. With this buyout, SS&C Technologies will be able to fortify its capabilities across existing as well as newer markets, and also bolster the company’s earnings and revenues.

On the other hand, we believe the transaction will result in enhancement of DST Systems’ overall shareholder wealth.

Currently, DST Systems and SS&C Technologies, both carry a Zacks Rank #2 (Buy).

Some better-ranked stocks in the broader technology sector are Micron Technology, Inc. MU and SMART Global Holdings, Inc. SGH, flaunting a Zacks Rank of 1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Currently, long-term expected EPS growth rates for Micron and SMART Global Holdings are 10% and 15%, respectively.

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DST Systems, Inc. (DST) : Free Stock Analysis Report
SS&C Technologies Holdings, Inc. (SSNC) : Free Stock Analysis Report
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