UPDATE 2 at 4:50 p.m. (original article follows at bottom):Stifel Nicolaus analysts said in a Monday report that they see Greg Daily's proposal to acquire iPayment "as a catalyst for share price appreciation, possibly above the $38 offer price."

Don McArthur and Craig Richard wrote Monday they expect a higher bid in the $42-$44 range or higher may be presented from a private equity firm or financial institution. Based on iPayment's current and expected cash flow and on recent corporate transactions, the analysts are keeping their $43 target price for the shares.

iPayment shares last traded Monday at $38.29.

~~~~~~~~~

UPDATE 1 at 10:26 a.m. (original article follows at bottom): In the wake of Greg Daily's $38/share bid for iPayment, NashvillePost.com solicited the thoughts of Vanderbilt law professor Randall Thomas about a few of the matters that confront companies, their managements and shareholders when current executives make LBO proposals.

First, he noted that it is critical for outsiders to learn if there are any preliminary agreements between a company and the manager leading the buyout effort. Such agreements sometimes include break-up fees and no-shop provisions. The iPayment release includes no language about any such agreements and says the proposal has just been received and that no decisions have been made yet by the special committee of the board. NashvillePost.com has a call in to CFO Clay Whitson to confirm that such agreements don't exist.

The special committee of independent directors has the obligation to determine if the proposal is in the best interest of and "fair" to shareholders. The special committee could put the company up for sale at auction, which presumably would attract the highest possible price for the company's owners. In practice, this isn't the usual response of a board to LBO offers, Thomas said.

"A less satisfactory response would be for the special committee to retain an investment bank to deliver an opinion on the fairness of the proposal," he said. "Typically, that determination would be made without third-party bidders." He said that option is reasonable as long as there are no impediments to other bidders, such as break-up fees and no-shop provisions.

~~~Original article follows below~~~

The chairman and CEO of iPayment (IPMT) has made a $38-per-share cash bid for the payment processing company he began assembling four years ago. Greg Daily's bid price is 20% higher than Friday's settlement price of $31.55.

In a Monday morning release, the Nashville company said a four-person committee of independent directors will review the proposal, but it didn't list those members. iPayment has five directors who could be considered independent: Private equity investors Peter Chung and Don McLemore, Belmont University professor Jennie Thomas, Ardent Health CEO David Vandewater, and David Wilds of First Avenue Partners.

With 16.85 million shares outstanding, the proposal represents $640 million, before the effect of stock options.

Daily already owns 1.97 million shares, or 11.7% of shares outstanding.

iPayment sold shares in an initial public offering at $16 in May 2002. Their 52-week high is $51.50.

In early Monday electronic trading, iPayment shares were changing hands at $36.75.

The proposal, being made by a new entity wholly owned by Daily, depends on his obtaining financing, the participation of "a sufficient number of other executive officers" in the acquisition, and the execution of a merger agreement.

Earlier this month, the company said it earned $6.87 million, or 38 cents a share, on revenue of $163.4 million in the quarter ended March 31. Analysts' consenus estimate of 2005 per-share earnings is $1.85, according to Thomson Financial; the average for 2006 is $2.15.