Certegy to Merge With Fidelity National Information Services: Looks For Cross-Selling Opportunities

ST. PETERSBURG, Fla. – Certegy, the card processor for roughly 4,000 credit unions announced on September 15 that it has signed a merger agreement with Fidelity National Information Services (FIS), a majority-owned subsidiary of Fidelity National Financial Inc. “We are very excited to become part of the FNF family,” said Lee A. Kennedy, Certegy CEO. “This combination creates one of the largest financial institution technology processing and services companies in the world. It provides Certegy with the opportunity to significantly increase the depth and breadth of products and services that we offer to the domestic community bank and credit union markets, as well as our international customers. “It also provides a potential entry point with larger financial institutions through FIS’ large bank processing relationships. We expect this combination to provide significant value for our existing Certegy shareholders, including both the $3.75 per share special cash dividend and the expected accretion to trailing 12 months cash earnings per share of 16%,” he concluded. FIS has moved strongly into the credit union data processing industry in recent years, including purchasing Aurum Technology in February 2004. The card processor took the step because it saw a wide variety of opportunities to broadly cross sell different products and services to credit unions and community banks. In fact, cross selling products to credit unions and community banks is at the core of the new company’s marketing strategy. Should the regulators and Certegy shareholders approve of the deal, FIS will be the surviving company and will move to offer credit unions and community banks a “one stop” approach to both card processing and data processing services. In a September 15 analysts call, executives from Certegy and FIS detailed the opportunity that awaits the new firm. Currently the two companies share roughly 700 financial institution customers, of which 170 are credit unions. That will leave the new company with roughly 6,000 credit unions and community banks to whom it can offer data processing services and about 1,700 credit union and community banks to whom it can sell card processing. The executives pointed out that none of the new company’s competitors will be able to offer the same suite of products to financial institutions that the new company will be able to offer. These include core processing services, card issuing services, mortgage processing services, check and risk management services, information and outsourcing services and international services. The new company will have a combined senior management team. FNF Chairman and CEO Bill Foley will serve as the new company’s chairman of the board. Certegy CEO Lee Kennedy will be the CEO of the new company, FNF Chief Financial Officer Al Stinson will continue as CFO of the new company and a mixture of management staff from both companies will fill out the management team, the executives said. Significantly the deal, which the company expects to close in the fourth quarter of 2005, also carries a “break-up fee” should it fall through of $65 million and up to $10 million in expense reimbursements, the executives said. The Other Word For Synergies. The executives told stock analysts and reporters that they expect to see $50 million in synergies, or cost savings, from the merger and the FIS executives pointed out that the company had surpassed the cost efficiencies it predicted it would gain from its other mergers with Aurum, Sanchez and Intercept. FIS listed personnel layoffs as a source of savings in each of those mergers but, given that the company plans to roll out a cross selling effort to other financial institutions, it’s unclear that Certegy has the personnel to lay off. Observers close to the company pointed out that Certegy has a relatively small marketing staff and that the personnel rich cardholder services staff may not be a place where the new company will want to begin cutting. One area that executives mentioned in the conference call was facilities and FIS is known to want to expand its campus in the Jacksonville, Florida, area. Company officials have declined to comment on the pending merger, citing Security and Exchange Commission regulations. Reactions from others in the industry have mostly been muted. Dan Green, spokesman for Pemco Technology Services, a processor for over 230 credit unions, said that the company’s policy was not to comment on competitor’s mergers other than to wish them well. TNB Card Services, the Dallas-based card processor for a number of credit unions, also declined comment. David Serlo, with PSCU Financial Services, the cooperative card processor for over 500 credit unions that use the First Data platform, noted that this was not Certegy’s only merger or spin off over the years and that such developments had to be expected form a publicly held company whose interest has to focus on increasing value to its shareholders. He also pointed out that since PSCU works hard to make sure its card processing integrates with whatever processor its credit unions use, there wasn’t necessarily any benefit to having one company offer both core processing and card processing services. But Robert Hackney, President of Card Services for Credit Unions, the association of credit unions which process with Certegy, saw the broader range of products in the new company as a good thing. “Based on what I have learned about Fidelity’s capabilities thus far, I would envision the proposed merger provides the potential for CSCU credit unions to secure their core data processing as well as their credit and debit card processing, including signature and PIN processing, from a single source provider,” Hackney said. “This would enable our member credit unions to focus on what they do best- provide their members with the appropriate products and services to develop long term member relationships-while achieving cost effective back office processing services through the new company.” -