Misys and Temenos are in "preliminary discussions" about a merger that could make them into the largest software supplier to the financial sector.

The discussions come several months after an aborted takeover bid of Misys by US firm Fidelity National Information Services Inc. (FIS). Those talks were broken off with Misys reported as saying the bid "materially undervalue[d]" the company, following a year in which profits rose by 12 per cent.

Misys confirmed today it was in the new talks "regarding a possible strategic combination to be affected by way of all share merger". However the software producer added the proviso that there was yet "no certainty" of a deal nor "as to the terms on which any transaction might be constituted".

This was echoed in a cautious announcement by Switzerland-based Temonos, declaring that the possibility of a fusion formed part of firm's drive to "constantly [evaluate] its strategic options".

The importance of the development in the banking software industry was underlined by Milan Radia, managing director of equities research at Jeffries International Ltd. Speaking to Bloomberg, he said the merger would create the largest provider of specialised computer programs to banks and financial institutions. The total combined value of the two businesses is £1.96 million, based on yesterday's closing share prices.

Misys software that is used by over 1,200 financial firms with products covering risk and wealth management, trading of derivative securities and lending. Temenos provides software more than 1,500 clients, ranging from corporate and retail to microfinance and community banks.

On news of the talks, the share prices of both firms rose: Temonos up by 11 per cent in Zurich trading to stand at 19 francs, and Misys by 2.8 per cent to 33.46 pence on the FTSE 250, respectively.

In October, Misys reportedly faced a revolt by shareholders over plans for "excessive" executive pay.

In its latest half-year report published in January, Misys recorded an increase in orders of a third and revenue growth of more than a fifth.