Kansas City-based DST Systems, with 4,000 area employees, has agreed to a buyout by a Connecticut-based rival that values DST at $5.4 billion, including its debts taken over by the buyer.
SS&C Technologies Holdings will pay $84 a share for DST Systems under terms of a definitive agreement announced Thursday.
Word of a deal hit financial markets Wednesday and drove DST stock up more than 22 percent. DST shares climbed $4.03, or 5 percent, after the announcement and finished at $83.92. Trading near the deal price suggests that financial markets were confident that the sale would go through.
The announcement said the purchase of DST continues SS&C’s “strategy of adding talented people and technology through acquisitions.” It also said the companies expected to generate cost savings of $150 million a year but would take until 2020 to generate that rate of savings. It did not indicate what role layoffs might play in cutting costs.
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Mergers between companies with overlapping businesses often lead to cost cutting, in part through layoffs. DST employs 14,400 worldwide and SS&C has 8,500.
DST provides data processing, fund accounting, pharmacy benefits claims processing and other services and operates data centers, notably its Winchester Data Center in a business park near Interstate 435.
Both companies’ clients mostly are in the financial services industries, though DST Systems also has carved out a business serving the health care industry.
Questions about cost savings came up during a conference call SS&C executives and DST CEO Steve Hooley held with investment analysts.
Bill Stone, CEO of SS&C, said savings could come from consolidating facilities. This typically involves moving work out of one site to another so the first can be closed and its expenses eliminated. Such savings typically include payroll, occupancy, utilities and other costs.
One analyst noted that the $150 million in savings expected from this merger seemed relatively low given the size of the companies and the savings SS&C Technologies found with an earlier merger.
Stone pointed out that the operations acquired in the earlier merger were in San Francisco and New York City, as well as London and Sweden.
“They were in particularly high-cost areas that we were able to really make some great gains on the consolidation of facilities with us,” Stone said. “With as high cost of living as Kansas City is, I don’t think it quite meets San Francisco or New York.”
Stone also was asked about DST’s investment holdings and real estate holdings, which include Kansas City properties it doesn’t occupy. The question was whether these could be used to pay off debt “down the road.”
“Yeah, of course,” Stone quickly replied.
In the announcement, however, Stone said he was “excited to have the DST employees from around the world join the SS&C team and look forward to having a continued local presence in Kansas City.”
Hooley said in the announcement that the sale would allow the company to continue its “extensive, multi-year strategic transformation” and then he added, “We thank all of our employees around the world for working hard to make this compelling combination possible.”
Putting the companies together means combining competing operations on some fronts, analyst Peter Heckmann with D. A. Davidson & Co. said in a note to clients Thursday morning. He suggested that some locations would close.
“We would expect cost synergies to stem from data center consolidation and reductions in corporate overhead. As well, we would expect divestitures (of non-core operations and investments) could help to reduce debt levels,” Heckmann wrote.
The companies expect to complete the deal by the third quarter of 2018, pending approval by DST shareholders and clearance from regulators.