SunGard Buyout Scuttles Spinoff

One of the biggest leveraged buyouts in U.S. corporate history has squelched plans by SunGard (NYSE: SDS) to spin off its data availability business. But things may not stand still for long.

SunGard has agreed to allow a consortium of private equity investment companies organized by Silver Lake Partners to take the public company private in a transaction worth about $11.3 billion.

The plan puts an end to SunGard's intentions, announced in October 2004, to spin off SunGard Availability Services, its disaster recovery services business (see SunGard Spins Off DR Biz). Availability runs as a separate entity within SunGard, and in 2004 it accounted for about one third of the company's $3.5 billion in worldwide revenues. Availability has long been the focus of industry rumors, including the chance it might be sold to a big supplier before SunGard spun it off.

For now, all bets are off. "It's business as usual in every regard," said SunGard CEO Cristbal Conde in a conference call with analysts today. "We believe the investors intend to hang onto SunGard as one piece for a very long time."

There will be no executive changes or employee cuts, he says. SunGard Availability will continue to be headed up by group CEO James C. Simmons from its headquarters in Wayne, Pa., and its 2,000 or so employees will continue unchallenged in what SunGard claims are services to over 1,000 clients worldwide.Presumably, Conde's comments also encompass SunGard Availability's numerous partnerships, including ones with Dell Inc. (Nasdaq: DELL), Dot Hill Systems Corp. (Nasdaq: HILL), EVault Inc., and Sun Microsystems Inc. (Nasdaq: SUNW). (See Dell, SunGard Get Into Recovery, SunGard UK Partners With Dot Hill, Sun Offers Disaster Recovery, and EVault Inks Deal With SunGard.)

But industry sources think Conde's "long time" reference could be relative. "Sungard is a company with a mix of several disparate businesses with nothing in common. This causes negative synergy," writes analyst Kaushik Roy of Susquehanna Financial Group in an email today. He thinks the buyout consortium may look to unlock the value of individual businesses such as Availability by breaking them up.

SunGard intends to file its proxy forms within the next ten days and close the deal with pending shareholder approval by the third quarter. The buyout group will pay roughly $3.5 billion in cash, assume about $500 million in SunGard debt, and get the rest from banks. Conde says several letters of commitment from banks have been received and there is a bridge facility being stumped up as well. Eventually, the assets of SunGard will be used to secure the bank transactions.

Besides Silver Lake, the buyout group includes Bain Capital, The Blackstone Group, Goldman Sachs & Co., Kohlberg Kravis Roberts & Co., Providence Equity Partners, and Texas Pacific Group.

— Mary Jander, Site Editor, Byte and Switch0