First Data Grabs Concord EFS for $6.7 Billion
M & A: In a move aimed to shore up its position in the automated teller machine market, Concord EFS Inc. said Wednesday that it had agreed to an all-stock offer worth $6.7 billion from rival First Data Corp.
The deal is the largest of the year to date in the United States and comes less than a month after Concord hired Goldman, Sachs & Co. to help it explore its alternatives. The combined company will grab approximately two-thirds of the electronic transactions market, but analysts believe that it will have a difficult time holding onto that position. The new company also is expected to have $10 billion in revenue and about 31,000 employees. The transaction carries a $210 million breakup fee and has no collar.
In a conference call with analysts Wednesday, the companies said they plan to use $1 billion of $1.2 billion in acquired cash to buy back First Data's stock as soon as allowable.
Analysts expected this union. "I'm not all that surprised that First Data and Concord are getting together," said Richard Stice, an equity analyst at Standard & Poor's. And from the perspective of Concord's shareholders, the offer is a pretty good deal, said Stice, who has no investment banking relationship with Concord. But he added that it was conceivable that news of the agreement could draw a hostile bid.
Based on its closing price Tuesday of $34.68, First Data is offering $13.87, representing a premium about 17% over Concord's closing price Tuesday of $11.87.
Under the terms of the deal, First Data would exchange 0.40 of a common share for each Concord common share. To complete the transaction, First Data would issue about 200 million common shares to Concord shareholders, who would own about 21% of the outstanding shares of the new entity. The deal is subject to approval by shareholders of each company and government regulators.
First Data chairman and chief executive Charlie Fote said the combined company will greatly expand First Data's resources for handling electronic payments and purchases for banks, merchants and their customers. "It will add universal authentication for all types of electronic transactions at the point of sale and beyond," Fote said in a conference telephone call with analysts.
First Data said the deal would lead to cost savings of $230 million. Fote added that a combined First Data and Concord would be in a better position to compete against Visa U.S.A. and MasterCard International in the personal identification number-verified transactions business.
But Gwenn Bezard, an analyst at Celent Communications, said that the new combined entity would continue to face tough price competition from Visa U.S.A. Interlink, a rival electronic transaction network. "It remains to be seen if the economy of scale will be able to offset the competition from Visa," Bezard said.
The deal comes at a critical time for Concord of Memphis. It has seen its share price fall precipitously amid concern about its ability to renew major bank contracts in its core ATM business. The Concord network is the nation's largest and includes STAR, MAC and Cash Station machines.
But this deal may not necessarily solve Concord's problems, Bezard said. "The acquisition would provide a short-term answer to Concord's financial troubles, but it might give headaches to First Data in the long run."
More important, Bezard said: "It will remain to be seen if the new organization will be more successful at renewing contracts with banks for [Concord's] Star Network."
In the conference call, Concord chairman Dick Kiphart called the renewal of those contracts "critical." He said it was one of the most important aspects of the transaction, adding that the merger with First Data would put Concord in a better position to renew those bank contracts.
But Concord's problems could be deeper than it has publicly stated. "Their biggest shareholders could looking for an exit strategy," said Gary F. Prespotino, an analyst at Barrington Research Associates. Among Concord's shareholders is William Blair & Co., which worked with Goldman in advising Concord and was the financial adviser on Concord's acquisition of Star Systems in 2001.
Meanwhile, Denver-based First Data, owner of Western Union and the majority owner of the NYCE network of ATMs, has experienced its own setbacks. In March it lost a longtime customer, Bank One Corp., which said it would switch to Columbus, Ga.-based Total System Services Inc. for its credit care processing beginning at the end of 2004.
DEAL MEMO: First Data Corp. * Concord EFS Inc.
ACQUIRER: First Data Corp.
Investment Banks:
-- Merrill Lynch & Co.
-- Patrick Olson, John Esposito, Paul Wetzel
-- J.P. Morgan
-- Jimmy Elliott (managing director), Tom Novack, Fernando Rivas
Law Firm:
-- Sidley Austin Brown & Wood LLP
-- Fred Lowinger (partner)
TARGET: Concord EFS Inc.
Investment Banks:
-- Goldman, Sachs & Co.
-- Jeff Sloan (managing director), Sean Minnihan, Greg Mitsch-- William Blair & Co.
-- Chris Cotter (principal), Karl Palasz, Rob Metzger (vps)
Law Firm:-- Kirkland & Ellis-- Jack Levin, Scott Falk (partners)
DEAL VALUE: $6.7 billion
DEAL TYPE: Stock
This article is reproduced with permission from law.com and the April 3, 2003 issue of The Daily Deal. © 2003 NLP IP Company.
