The unexpected sale of DST Systems had been stewing for more than a year when it shocked financial markets and employees last month.
Over 15 months, the sale competed against other considered outcomes, including DST’s purchase of another company identified publicly as “Party A” and even splitting up DST itself.
These and other details surfaced in a 15-month time line that Kansas City-based DST revealed to its shareholders Wednesday.
It amounts to a second round of surprises for investors and employees who were caught off guard Jan. 10 by rumors that DST would be sold to rival SS&C Technologies Inc. Shares surged 22 percent and the next day the deal became official.
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Despite DST’s wide range of options, analyst Pete Heckmann said the disclosures showed the company had few potential bidders and did relatively little to scout the market’s interest.
“While the limited scope of the market check could be perceived as inadequate to some,” Heckmann wrote in a note to clients at D.A. Davidson & Co., “we continue to believe there were few good fits among strategic buyers.”
And the surprises may continue.
“We would expect divestitures of non-core operations ... and non-core assets could help to reduce debts,” his report said.
The spark igniting DST’s sale had come out of Windsor, Conn., on Nov. 14, 2016.
SS&C chief executive William Stone chose that day to contact his DST counterpart, Steve Hooley. Stone suggested SS&C might like to buy its rival.
At first, little came from his overture. The men did not talk terms, according to DST’s preliminary proxy statement to shareholders filed with the Securities and Exchange Commission.
According to the proxy, Hooley waited a month before conveying Stone’s suggestion to DST’s board of directors. At a regularly scheduled Dec. 13, 2016, session, the board decided to stick with DST’s own plans.
The company already was in talks to buy out partner State Street Corp. Together, they owned two businesses that directly served DST’s client base of mutual fund companies and other financial firms. DST also was in the process of selling an operation in the United Kingdom.
Directors, meeting at another regular session, took up deal talk again on Feb. 23. Wall Street advisers talked about a potential sale, about possible buyers and even the idea of spinning off DST’s health care segment as a separate company, according to the proxy.
Winter became summer and merger matters simmered.
By the board’s regular Aug. 1 meeting, discussions had turned to DST’s “challenges and competition,” and specifically DST’s “performance” compared with SS&C, the rival that held out its hand nine months earlier. Directors talked about selling DST but put off decisions for another day.
On Oct. 26, the Wall Street advisers were back and joined by legal experts at DST’s regular board meeting. Who else might be interested in DST? Should the experts contact some of them?
No, the board decided, but management could talk to SS&C about a deal.
Hooley and Stone held the first of their face-to-face sessions revealed in the proxy over lunch on Halloween. The report to shareholders did not say where this happened but at least one other session was in Kansas City.
Other matters were on Hooley’s mind on Halloween, specifically “Party A.” The proxy described it as a “provider of risk management and technology solutions” DST was keen on buying. Ultimately, DST backed off.
Heckmann explained that once DST decided to pursue its own sale, buying Party A “might make them less attractive as an acquisition target.”
Attention turned instead to three other companies, B, C and D in the proxy, that DST’s agents approached about their possible interest in buying DST. Stone had said SS&C would consider paying between the high $70s and mid $80s a share for DST, whose stock was trading near $59 at the time.
B, C and D were being tested as a sort of price check. B and C declined in a couple of weeks. Chats with D lasted longer largely because it wouldn’t accept DST’s terms for sharing details to make talks meaningful.
Party D lingered until Jan. 3, when Hooley was set to meet with one of its senior executives, according to the proxy.
“The meeting was canceled by Party D,” the proxy said.
Meanwhile, Hooley and DST’s board had weighed Stone’s first firm offer of $81 a share and asked for more. Stone went to $84 a share a month before the news leaked on Jan. 10.
The rumor had it right: SS&C agreed to buy DST for $84 a share, but all the details had not been worked out. DST directors approved the final terms Jan. 11 before the stock market opened, and the official news broke.
No rival bids for DST have surfaced since the SS&C announcement. The companies expect to complete DST’s sale by the third quarter of this year.