--Payment processor TSYS agrees to buy NetSpend Holdings for
about $1.4 billion in cash
--TSYS will pay $16 a share in cash for NetSpend, a
prepaid-debit-card provider
--TSYS says it will look to expand NetSpend globally
Payment processor Total System Services Inc. (TSS) said Tuesday
it has agreed to buy prepaid-debit-card provider NetSpend Holdings
Inc. (NTSP) for about $1.4 billion in cash.
The purchase price equates to $16 per share, the companies said
in a statement.
The acquisition by TSYS is a bet that digital payments will
continue to replace cash transactions, particularly among the
millions of "unbanked" Americans who don't have checking accounts.
NetSpend estimates there are more than 60 million such consumers in
the U.S.
"You don't have to get a very big piece of the available market
to have significant growth from where we are currently," NetSpend
Chief Executive Dan Henry said in an interview. NetSpend, based in
Austin, Texas, sells its reloadable prepaid debit cards at more
than 62,000 locations, including convenience stores, check cashers
and tax preparers.
TSYS, which has a stock market value of about $4.3 billion and
is based in Columbus, Ga., has been expanding through acquisitions,
broadening out from its traditional role as third-party payment
processor.
In December, TSYS paid an undisclosed sum for ProPay, a Utah
company that provides mobile-payment processing software and
equipment, such as card readers that attach to smart phones.
Prepaid cards have become one of the fastest growing
financial-services products, attracting a slew of mainstream
lenders that have rolled out their own cards to expand their
customer base and cope with new regulations that have crimped
credit- and debit-card revenue.
Lenders including J.P. Morgan Chase & Co. (JPM), American
Express Co. (AXP), U.S. Bancorp (USB) and others have begun
offering the cards over the last year and a half, putting pressure
on NetSpend and Green Dot Corp. (GDOT), a company that generates
more than 60% of its revenue through a partnership with Wal-Mart
Stores Inc. (WMT).
Both NetSpend and Green Dot went public in 2010, and analysts
have cited them as potential acquisition targets in the past.
Green Dot's shares were up 12.7% at $16.48 in after-hours
trading on Tuesday, though had been up as much as 16%.
Capital One Financial Corp. (COF) in 2007 announced a deal to
acquire NetSpend for $700 million but the companies later scrapped
those plans.
TSYS, which performs processing for financial institutions and
merchants, said the deal would help it forge more direct
relationships with consumers and seize a bigger share of the
growing prepaid-card market.
Spending on open-loop prepaid cards, or those that carry the
logo of a payment network such as Visa Inc. (V) or MasterCard Inc.
(MA) and can be used like regular debit card, is expected to grow
to $411 billion by 2016 from $201 billion in 2012, Philip
Tomlinson, CEO of TSYS, said during a conference call to discuss
the deal on Tuesday, citing estimates from First Annapolis
Consulting.
TSYS will look for opportunities to expand NetSpend's presence
globally, Mr. Tomlinson said, noting the company is currently
limited to the U.S.
NetSpend recently started a partnership with Intuit Inc. (INTU)
that allows taxpayers to obtain NetSpend debit cards through the
software company's TurboTax products, and then have their refunds
deposited to them. NetSpend also said it will soon roll out a
similar feature for Intuit's QuickBooks software for small-business
owners, making NetSpend cardholders able to receive payroll
deposits.
NetSpend also offers corporate payroll services in which workers
can have salaries deposited directly onto the cards. It currently
has more than 1 million direct-deposit accounts.
At $16, TSYS is offering a 30% premium to NetSpend's closing
price Tuesday. Shares fell 3.2%, or 40 cents, to $12.29 in New York
Stock Exchange composite trading at 4 p.m. EST, though shares were
up 30% at $16 in after-hours trading. The shares briefly rose above
$16 following its initial public offering in late 2010 but have
traded substantially below that mark ever since.
Shares of TSYS were down 1.8% at $23.05 in after-hours trading
on Tuesday.
NetSpend last week said its 2012 revenue rose 15% from a year
earlier, to $351 million. Profits declined year-over-year as
NetSpend paid $24 million to settle a long-running legal
dispute.
TSYS said it hoped to have the transaction closed by midyear and
that the acquisition is expected to boost its earnings in the next
year.
Write to Ryan Dezember at ryan.dezember@dowjones.com and Andrew
R. Johnson at andrew.r.johnson@dowjones.com
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