Metavante Seeks to Acquire NYCE for $610 Million; Deal Raises Market Questions

ARLINGTON, Va. – Metavante, the financial services subsidiary of the Marshall and Ilsley Corporation based in Milwaukee, Wisconsin, announced that it has agreed to purchase NYCE from First Data for $610 million. While First Data Corporation’s finding a buyer for the NYCE network tied down one loose end of its merger with Concord EFS, the deal may unravel other long-standing market relationships and bring even more instability to the steadily percolating ATM and EFT market, according to some industry experts. The $610 million price tag was significantly higher than analysts had predicted because Metavante, which claims 5,000 credit union clients, made it clear that it was not interested in just First Data’s 64% majority ownership interest but in the minority interest as well. For this reason the offer has been structured so that $389 million would go to First Data and the remaining $221 million to the four large New York-based banks which started the network and which own the majority interest in it. The banks have 30 days in which to accept the purchase price or to raise the capital themselves from investors to buy it, according to Chip Swearngan, Metavante’s director of public relations. Swearngan would not comment on what the banks might do but he confirmed that regulators would also have to approve the sale of one of the nation’s biggest ATM and EFT networks. He also pointed out that the sale had been forced by regulators in the first place, as a condition for First Data to merge with Concord EFS, which owned the STAR ATM network. “So they have an interest in signing off on the deal,” Swearngan said. Swearngan added that the first thing the purchase will bring Metavante is a network switch. Currently the company has relationships for firms that have network switches, but none of their own, he explained. It’s also going to bring some size. From the network perspective, NYCE is an ATM and EFT powerhouse. As of the end of February 2004, NYCE’s more than 2000 financial institutions, including almost 1,000 credit unions, have issued 54 million cards with the NYCE logo which can be used at the network’s almost 150,000 ATMs and over 900,000 merchants with point of sale terminals. From a processing perspective the combination also looks large. According to Metavante, after the purchase the firm will process transactions for 1,800 member institutions (currently Metavante processes for 1,200 and NYCE for 600); drive 20,000 ATMs (Metavante 9,000, NYCE 11,000) and process together more than 235 million monthly transactions (Metavante 210 million, NYCE 25 million). The industry has generally reacted favorably to the intended sale, but with some caution too. For example, one of Metavante’s already existing relationships is with the PULSE EFT Association, the nation’s only ATM network that is owned both by banks and credit unions. While a PULSE executive generally praised the move, she also pointed out that it could bring some further instability. “Metavante is one of our processing partners and an excellent organization,” said Cindy Ballard, an executive vice president with PULSE. “We have a long relationship with Metavante that we anticipate continuing. But whenever there is a major change in the industry along the lines of this purchase it always creates opportunities,” Ballard noted. Uncertainty about those opportunities and how they might play out is just one source of potential instability that Ballard and other industry analysts said the deal might portend. For example, in a conference call with analysts, Metavante executives would not answer questions about when the four major contracts NYCE has, each with one of the network’s founding banks, might expire or whether the network has started negotiations with those banks to renew the contracts. They did say, however, that the purchase contract with First Data does not contain any non-compete provision and thus leaves the Denver based processing giant to make a pitch for some of the core of NYCE’s business. Another source of instability may rest with Metavante itself and its run of purchases. In April, Metavante announced it signed an agreement to purchase deposit and loan software developer Kirchman Corporation, headquartered in Orlando, Florida; and in May the company purchased Advanced Financial Solutions, a check imagining firm in Oklahoma City and a related firm, Checkclear, which runs a check imaging network. Analysts pointed out that altogether the three transactions total $900 million and force Metavante to move into some unfamiliar fields. Concerns about Metavante’s ability to pull off the purchases successfully led Moody’s Investor Services to put Marshall and Ilsley on a list of firms to check for possible credit downgrade. But Metavante executives remained upbeat about the purchase and sought to reassure NYCE customers that no great changes would come about from the purchase. NYCE’s executive management team assured Metavante that no pressing governance changes at NYCE were necessary right now. [email protected]