Platform:Rival electronic payments groups must be rubbing their hands with glee at the self-destructive turbulence at Payzone, which was set up specifically to run the amalgamated businesses of electronic payments groups, Alphyra and Cardpoint. They will obviously be looking to pick up some customers but shouldn't they capitalise on Payzone's vulnerability and pounce with a mop-up bid at a suitable time?
At the moment Payzone is the hot potato of the industry. Its image is tarnished following Ms Justice Maureen Clark's ruling in the High Court last week that chief executive John Nagle and chief financial officer John Williams had been deprived of constitutional justice and fair procedures when they were sacked. And a greater indictment was the confirmation that no board meeting took place when it was initially decided to terminate the men's contracts.
They have been reinstated in their roles pending the outcome of full legal proceedings in the High Court, which discharged the injunctions on Wednesday, but, as has been extensively reported, their fate will really be decided at an egm called to vote the two out of office. Clearly shareholders have the right to sack any senior executive provided they get their due compensation.
In the meantime the duo's influence will be minimal following the appointment of board member Mark Evans as chairman of the operations committee. As the nominee of Balderton, which owns 39.2 per cent of the company, and which is backing the sackings, the two can't expect sympathetic hearings. However, the threat of legal action against the board members is likely to keep any dialogue on a legalistic footing. What an intolerable state of affairs for a public company.
The seeds for a destructive collision between Payzone's chairman Bob Thian and John Nagle were there from the beginning but these potential differences should have been foreseen and ironed out prior to the signing of the get-together.
Bob Thian, who seems to have the backing of shareholders representing well over 60 per cent of Payzone, has a reputation as a hard-hitting troubleshooter; as chairman of Whartman, the UK laboratory business, he removed four chief executives before the business was restructured. While he had a 2 per cent stake in Cardpoint this was diluted to less than 1 per cent in the enlarged company.
John Nagle, a larger-than-life character who has always been used to getting his own way, has a far greater equity interest at 10 per cent. He has had a number of clashes, including the controversial MBO five years ago, which have not endeared him to some institutional shareholders. But he has a loyal staff backing.
Two rival companies that may have a little more than a passing interest in the upheavals at Payzone are First Data Direct (FDD) and PayPoint. During a management buyout of Alphyra, FDD made an "indicative" offer for the company that was higher than the MBO offer, but the MBO team said it would regard any offer by FDD as "hostile and most unwelcome", which received a mere rap on the knuckles by the Takeover Panel; it ruled that the words used were inappropriate.
However, it put a bad taste in the mouths of some institutional shareholders. It also put off other potential bidders. Atlanta-based Global Payments, for instance, confirmed it was considering making a bid but did not proceed because it was not interested in doing anything that would be perceived as hostile.
More recently, Alphyra thought it had purchased 52 per cent of PayPoint from BT Group and a unit of Electricité de France and that it was conducted in full observation of PayPoint's articles of association. However, the PayPoint directors were against this deal and the stake was instead sold to a group of institutions, and its shares were later that year floated on the London Stock Exchange,
Ironically PayPoint has enjoyed rapid expansion since then; turnover has almost doubled to £157 million (€210 million) in 2006/7 from 2004/5, while profit before tax jumped almost threefold to £26.5 million and more than doubled if exceptionals are excluded. Looking at Alphyra's record, the cynics could argue that PayPoint had a lucky escape. In contrast, Alphyra recorded losses before tax in both 2005 and 2006.
So what future has Payzone? The unlikely scenario of Payzone dominated by John Nagle would envisage the stepping down of Bob Thian, as it would be unthinkable to have two highly charged and directional bosses running the show. If a peace deal were signed, who is to say when the turmoil would erupt yet again - an unthinkable scenario.
The likely scenario of Payzone without John Nagle could create an initial void. That could also result in a number of other senior Alphyra executive resignations. That, in conjunction with its tarnished image, should lead to a radical rethink of its strategy, particularly as Balderton is likely to resume its abandoned plan to sell half of its shares to institutional shareholders.
At its launch Payzone was valued at some £150 million but this had slumped by more than 30 per cent prior to the suspension of the shares last month. Nevertheless, it is a business worth having - a pan-European group in 21 countries with more than 550 million transactions a year valued at more than €10 billion.
It would be a mere minnow to FDD, a multi-billion global electronic commerce and payment services company that was ranked 224th in the 2006 Fortune list. FDD also set up a joint venture company with AIB last year.
However, it would fit in particularly well with PayPoint, which has extensive interests in Britain and Ireland. Like other publicly-quoted companies its shares have crashed in the UK, but the company is still valued at some £400 million . If it adopted the right tactics, and played a suitable wait-and-see game, it could easily acquire both Alphyra and Cardpoint in one swoop and keep many of those institutional shareholders, and others, happy.
