Fidelity National Information Services Inc confirmed that talks regarding the sale of the company have ended, and the payment processor plans to borrow heavily to buy back shares.
Blackstone Group LP , TPG Capital LP and Thomas H. Lee Partners had dropped their joint bid for Fidelity on Monday because of disagreement over price, sources said.
The private-equity groups were offering Fidelity $32 a share, the sources said.
It is ($32) lower than what previous core-processing takeouts have gone for, Robert W. Baird analyst David Koning said.
When Metavante got acquired, they ended up going for 9.5 times their forward EBITDA, which would have put this stock at more than mid-30s range, he said.
Fidelity National had last year bought rival Metavante Technologies for $2.94 billion.
A leveraged recapitalization, that Fidelity now plans, typically sees a company borrowing substantial sums to pay a dividend to shareholders or to buy its own shares. Such a process raises shareholder return without an outright sale, although it does come with a lot of risk.
Analyst Koning said the company can easily handle an extra $1.5 billion to $2 billion in debt, given its strong free cash flow, stable revenue streams and recurring revenue.
Private-equity firms are interested in such companies as they have solid cash flows and a strong business model to handle heavy debt, he said.
Fidelity shares dropped as much as 7 percent to $26.80 Tuesday morning on the New York Stock Exchange.
The shares, which have rallied since talks of a buyout first surfaced, have recovered significantly since hitting a 52-week low of $18.25 a year back.
(Reporting by Anurag Kotoky in Bangalore; Editing by Ratul Ray Chaudhuri and Vinu Pilakkott)