The Federal Trade Commission approved First Data Corp.'s $6.7 billion merger with First Financial Management Corp. Thursday, but at least one agency official warned that future deals may not be approved so easily.
FTC Commissioner Christine A. Varney said she is concerned with the lack of competition in the card processing industry. The First Data deal would create a company with nearly 45% marketshare.
"I expect that we will soon see additional acquisitions in the merchant acquirer services industry and, in that light, I have asked the staff of the commission to continue to monitor the competitive situation in this evolving market," she said.
However, industry watchers derided Ms. Varney's warning, saying it was "too little, too late."
"The horse is already out of the barn," said Liam Carmody, president of Carmody & Bloom, a Ridgewood, N.J.-based consulting firm. He scoffed at the idea of issuing a warning statement after allowing this merger, the biggest in this segment of the financial services industry.
The decision was significant in that it marked the first time federal antitrust regulators have formally weighed in on the credit card acquiring business, where First Financial's Nabanco subsidiary is No. 1 and First Data's Electronic Funds Services division is No. 3.
And some analysts said Ms. Varney's warning may have the effect of making things even tougher for competitors of the merged company - which will retain the First Data name - including National Data Corp., National City Processing Co., and Total System Services Inc.
"The FTC has acted in what would have to be called the most anti- competitive way" on this issue, said Richard X. Bove, an analyst with Raymond James & Associates in Clearwater, Fla. "Both FDC and FFMC have been accused of using predatory pricing practices in the past to build marketshare." Mr. Bove added that he considers the new FDC a powerful company from an investor's perspective.
The new "FDC no longer has to battle for marketshare because it has it," he said. "The FTC statement is creating a basis for FDC to set higher pricing structures for its processing services."
First Data spokesman Gary P. Tobin said pricing has not yet been discussed. He also pointed out that the commission had originally looked into the impact of this merger on the merchant processing segment, and decided not to include that in the scope of its investigation.
Under the terms of the FTC consent order signed by First Data, the merging companies must divest one of their consumer money wire transfer services. First Data owns MoneyGram, and First Financial owns Western Union. Both provide domestic and international nonbank funds transfer services.
First Data will be allowed to process for both services, subject to confidentiality restrictions.
Mr. Tobin pointed out that First Data has about 16 months to divest one of the two services. Although he would not say which one would be sold, industry watchers expect it to be MoneyGram.
Western Union is a more dominant player, they say, and has a stronger brand identity.
Potential buyers for the MoneyGram business include Electronic Data Systems, ready to launch a unique money transfer service using automated teller machines; another processing firm; a large bank; or one of the regional bell operating companies.
First Data and First Financial said they expect to close their $6.7 billion deal by the end of October, although the transaction is still subject to shareholder approval, as well as sanctions from the Federal Deposit Insurance Corp., the Securities & Exchange Commission, and some state authorities.
"We are 85% done," Mr. Tobin said, "and everything else that needs to be done is very much on track."
