BISYS Group Inc. (BSG-NYSE) is doing one of the more foolish things they could do.  The company is selling out to Citigroup (C-NYSE) for what would amount to a $12.00 price. The exact compensation is the $0.15 special dividend and $11.85 buyout price.

Citigroup is buying the BISYS Fund Services and Alternative Investment Services groups, but it is then turning around and immediately selling the Insurance and Retirement businesses to private equity firm JC Flowers for an undisclosed sum.  This follows the BISYS strategic alternatives review conducted by the Board of Directors and the Special Committee.

Robert J. Casale, BISYS’ Chairman, Interim CEO & President: "We are pleased at this outcome of the strategic alternatives process. We believe this deal is the best transaction for our shareholders and clients, while providing new opportunities to our employees. We look forward to working with our colleagues at Citi and JC Flowers to facilitate a timely close and an orderly integration."

Well, this is more than hard to get excited about.  Yes the company had some problems and yes the company was still being grilled because of irregularities with customers in the past. But this may be the weakest sale price and company give-away so far.  The stock is up a whopping 1.7% at $11.67 after the open.  The 52-week treading range is $7.92 to $15.95, but the range before the last year or so was usually $14 to $18 for 3 years before that and this stock spent 2002 to 2004 north of $20.00 (and even got as high as $30.00+).  Shares were just at $13.60+ in February.

If this is not just a step and give it all away, then what is?  “After an exhaustive review” must have been done in bars and on gold courses, because this is going to cost many shareholder some money, and many of the holders who purchased recently were buying this for a higher buyout price or a real turnaround.  This tangible book value multiple may have been high because of recent issues, but this deal looks incredibly cheap if Citigroup can at least get the cash flows back to historic levels.

There are probably two sorts of BISYS shareholders this morning.  There is the camp that is probably happy that the value is at least at the market and happy to walk away.  Then there is the camp that probably feels it just got fleeced.  By the tone here, you can guess what we think of the deal without even having any dogs in the fight. 

This stock was a member of our BAIT SHOP of potential and likely buyout targets, but the relative cash flows and a turnaround valuation to get a deal done for longer-term holders placed a $14.00 expected price on this.  It was not without risk, but that was a level that was based on what it would take to get the deal done (opinion and target price).  It looks like some companies can be bought for free with little to no reward for most shareholders.  Shareholders better ask who gets what parachute on backing this offer, because it sure isn’t them.   

Jon C. Ogg
May 2, 2007

Jon Ogg can be reached at [email protected]; he does not own securities in the companies he covers.

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