SunGard will spin off disaster recovery unit

IDG News Service - Software and services vendor SunGard Data Systems Inc. today announced plans to split into two companies early next year, spinning off a disaster recovery services unit using a tax-free distribution of shares to stockholders.
The move will create two independent companies: one focused on software and processing services, and the other on business continuity, availability and disaster recovery services. The spin-off, expected to be completed by the end of the first quarter of 2005, will effectively end the union that created SunGard through a leveraged buyout in 1983, the company said.
Despite that merger over 20 years ago, the two SunGard businesses remained distinct from each other over the years, with different customers and sales forces and little overlap, according to a statement by Cristobal Conde, SunGard's CEO.
The Wayne, Pa., company's software and processing business, which accounted for 60% of SunGard's revenue in 2003, or about $1.8 billion, mostly serves the financial services and higher-education markets with integrated software and services. In contrast, the availability services business, which was responsible for the remaining 40% of revenue, or $1.2 billion last year, is marketed across industries, SunGard said.
The decision to spin off the availability services business came from the desire to grow the two units by allowing them to focus resources on their core business and more easily form business alliances, as well as a desire to provide more clarity to investors about the value and prospects for each company, according to James Mann, chairman of the board of directors at SunGard.
The availability business will retain SunGard's name and brand. James Simmons, currently the group CEO of the availability business, will become president and CEO of the new company, which will employ about 2,000 people and serve 10,000 customers. SunGard's current chief financial officer, Michael Ruane, will also join the spin-off company.
The company's software and processing business, which will be led by Conde, will have more than 10,000 employees and 15,000 customers in 50 countries, SunGard said. Executives at the software and processing business will focus on deepening the independent company's relationships with customers in its core markets and on product development and integration, SunGard said.
Several SunGard board members will transfer to the board of directors of the new software and processing company. Each of the two independent companies will have its own board of directors, with little overlap between the two, SunGard said.
In its most recent financial statement, SunGard announced that income for the second quarter of 2004 rose 14% over the same quarterin 2003 to $103 million, or 35 cents per share. The company is sticking to its prediction of net income between $1.37 and $1.42 per share for 2004 and anticipates single-digit growth in both its availability and software and processing units for 2005. Earnings estimates do not take into account expenses related to the planned spin-off.
The separation of the companies is expected to improve revenue growth at each of the new companies after the spin-off is complete, SunGard said.