First Data,Chase Deal Ends Uncertainty For First Data
By HEATHER DRAPER
October 5, 2005 7:23 p.m.
DENVER -- A merchant services agreement between First Data Corp. (FDC) and JPMorgan Chase & Co. (JPM) announced late Wednesday eliminates some uncertainty that had been hanging over First Data's stock for a while, analysts said.
First Data and JPMorgan said they have completed a deal to integrate the companies' jointly owned Chase Merchant Services and Paymentech merchant businesses, to be operated under the name Chase Paymentech Solutions LLC.
The new business will be 51% owned by Chase and 49% owned by First Data.
"It's fairly significant in that it eliminates some overhang on (First Data's) stock that needed to be removed," said FTN Midwest Research analyst Kartik Mehta. "It was a resolution that was in line with expectations."
As part of the deal, Chase Paymentech Solutions entered into a five-year processing relationship with First Data Merchant Services, the companies said in a joint statement.
Chase Paymentech is expected to process about 13.1 billion credit card transactions annually, with more than $500 billion in annual bank card volume in the U.S. and Canada, the companies said.
First Data, of Denver, had been telling analysts that a resolution with Chase was imminent, and the announcement Wednesday likely allayed market concerns about First Data's relationship with one of it biggest business partners.
JPMorgan Chase, of New York, bought Bank One Corp., of Chicago, last year, along with Bank One's stake in Paymentech LP. The deal raised questions about how to combine Chase and First Data's jointly owned Paymentech and Chase Merchant Services. The biggest fear for First Data was that Chase would walk away from its alliance with First Data as a merchant services partner, although such a move wasn't expected.
"It's always nice to get rid of uncertainty," said D.A. Davidson & Co. analyst John Kraft. "I think this is a positive for First Data."
First Data Chairman and Chief Executive Charlie Fote said in a statement: "Today's agreement to integrate the merchant businesses builds upon a 25-year relationship between Chase and First Data, a relationship that has advanced the payment industry and delivered innovation and choice to merchants and consumers."
First Data spokesman Rodney Bell said "it just made sense for both companies to take a thorough look at this, at what's the best way to integrate these businesses."
The new merged entity should generate cost savings for both companies, as well as create some revenue-generating opportunities that the two separate companies might not have had, Bell said.
He said that First Data doesn't have any layoffs planned now as part of the integration, although some positions might be eliminated as the integration progresses.
Bill Campbell, chairman of Chase Card Services, said in a statement that both companies "are market leaders, and their integration creates an excellent opportunity to provide merchants with the best array of products and services in the industry."
A Chase spokesman couldn't be reached for further comment Wednesday.
Neither analyst mentioned owns shares in the companies. D.A. Davidson may seek investment banking fees from First Data in the future.
First Data shares recently were unchanged from their close Wednesday of $38.78, after rising briefly in after-hours trading to $39.53, according to Nasdaq.com. JPMorgan Chase shares also were unchanged from their close Wednesday at $33.45. |
