In a letter to S1 chairman and CEO James Mahan, the investor group, led by New York-based Ramius Capital Group, says Atlanta-based S1 has consistently underperformed its peer group, with revenues and operating performance continuing to decline despite significant capital investment.

The letter states that the vendor has lost approximately 77% of its market value since January 2002, while revenue has declined by 13.8%.

Ramius argues that the best way to unlock shareholder value would be to pursue a sale, which could achieve a higher return to shareholders than a stand-alone public market valuation.

"We remain sceptical that a stand-alone strategy will successfully maximise shareholder value," says the letter.

Earlier this month S1 reported a net loss for 2005 of $1.1m, compared to a profit of $5.6m in 2004, after restructuring costs of $15m hit earnings.

A delay in the delivery of the firm's newest Enterprise products - Entperise 3.5 - also impacted Q4 results. The package is expected to be launched soon, but Ramius says the potential success of the product is not adequate justification for the company to remain a stand-alone entity.

"The company would need to grow revenue by more than 35% without increasing operating expenses just to earn its cost of capital. As a result, we believe the potential realistic benefits of waiting for this product are not strong enough justification to delay exploring strategic alternatives," says the letter.

Ramius says it is also considering nominating a slate of directors for election at S1's upcoming 2006 annual meeting of stockholders.

In its response to the letter, S1 says its new business plan is just starting to show results and the long-term best interest of all shareholders will be served by executing on that plan, rather than selling the company now.