BankAmerica Corp. is taking its merchant processing business public in a stock offering projected to raise $324 million.
The move is a renewed sign of strength for merchant processing, the business of helping retailers with their credit card payments. And it indicates BankAmerica's resolve to stay in, and profit from, an activity that many of its peers exited during the last decade.
The San Francisco banking company expects the new capital to fuel its merchant unit's growth and improve its competitiveness with giants like First Data Corp. But the deal will be structured so that it retains voting control.
BankAmerica said it filed a registration statement Friday with the Securities and Exchange Commission for a newly formed subsidiary, BA Merchant Services Inc. Eighteen million "Class A" shares will be offered to the public; the parent company will own all "Class B" shares, each with 10 times the voting power of a Class A share.
The two-class stock approach is unusual, but initial public offerings of merchant processors, and the parent bank's desire for control, are not. Two rivals in the business, National City Corp. and First USA Inc., spun off minority interests in their merchant businesses this year.
With capital- and technology-rich transaction processing factories increasingly dominating what was once a banking stronghold, analysts say banks have three choices: selling their merchant businesses, entering into joint ventures, or staying independent and trying to capitalize on interest in initial public offerings.
Some observers said BankAmerica may have missed the IPO peak.
"This would have been a much better move six months ago," said David Robertson, president of The Nilson Report. "The market was much more favorable to initial public offerings in general."
But merchant processing consultant Paul Martaus of Martaus and Associates, Clearwater, Fla., said: "This is a big deal. They are taking advantage of very fertile conditions in the marketplace."
In addition to the National City and First USA deals, Nova Information Systems of Atlanta made a $117 million offering in May.
Also shaking up the market this year, Visa U.S.A. and MasterCard International launched joint merchant ventures with Total System Services Inc. and National Data Corp., respectively, which could prompt future IPOs.
BankAmerica formed BA Merchant Services this month to consolidate domestic and international merchant operations. The unit is headed by Sharif Bayyari, executive vice president and manager of merchant card services, who is to continue in that post.
Mr. Robertson said the processor would be more profitable and valuable to shareholders as a separate unit.
The Oxnard, Calif.-based Nilson Report said BankAmerica, with 1995 volume of $17.2 billion for 65,000 merchants, is No. 4 in the business, behind First Data, National City's National Processing Co., and First USA Paymentech.
The stocks of publicly traded processors typically trade at 30 to 40 times earnings, at least double the multiples of major bank holding companies and monoline card issuers like First USA.
Mr. Martaus said BankAmerica can raise "serious expansion capital" because few investment opportunities are so promising.
"Bank of America has been watching the consolidation in the business, like a game of musical chairs," said Robert E. Hyer Jr., director, financial institutions group, Smith Barney. "They recognize, if they want to continue to flourish and grow, they've got to get an independent currency to allow them to continue to do acquisitions and invest in the business."
He said BankAmerica has a built-in source of business development in a multistate branch network that few, if any, competitors can match.
