Misys offers £212m for ACT to create giant in computer software

The consolidation of Europe's computer software industry took a further step yesterday when Misys, the Birmingham-based computer services group, announced a £212m agreed offer for ACT, its troubled Midlands rival.

The merger will form the world's third-largest computer software products group, behind Computer Associates of the US and Germany's SAP. Both groups specialise in banking and insurance software supply to retail and merchant banks.

Kevin Lomax, Misys chairman, said: "Historically the UK has been extremely good at developing software but we've often not been that successful at managing it. We believe we've got the management to develop a world player in the market."

The enlarged group will have combined sales of around £340m and 3,600 staff. Mr Lomax said that research and development was now so important that only larger players could expect to succeed.

He wanted the deal to be seen as one driven by strategic logic but admitted that costs would be cut. ACT's head office in Edgbaston will be closed There is also scope for research and development and distribution rationalisation, he said. The deal will result in a complete clear-out of the ACT board.

Misys is offering 300p in cash plus 2.2 new Misys shares for every 10 ACT shares, a premium of more than 50 per cent on ACT's share price on Friday. Misys says it will fund the deal from its existing banking facilities. Misys shares finished the day 49p lower at 360p. ACT put on 30.5p to finish at 107p.

The two groups have experienced contrasting fortunes of late. Misys has reported rising profits over the last three years. ACT, born out of the old Apricot Computers group, announced its second profits warning in a year last month, forcing brokers to cut their profit forecasts from £25m to £16m. In addition to poor UK trading, the company has also experienced delays in product launches and problems with certain products such as a derivatives program supplied to SG Warburg that did not perform as hoped.

Mr Lomax said these problems were caused by over-ambitious profits expectations which had necessitated lower investment in research and development. He said the business was sound and could be rectified by management changes and investment.

Mr Lomax added that Misys saw itself as a consolidator in the industry and would like to expand its operations in the US.