a credit card and transaction processing business from Morgan Stanley Dean Witter & Co. for $896 million. Recently spun off from Ford Motor Co., Associates said it would acquire substantially all the assets of SPS Transaction Services Inc., which had been controlled by the Dean Witter organization since it was part of Sears, Roebuck and Co. in the 1980s. Associates said it was particularly interested in the $2.3 billion of private-label credit card receivables that SPS manages on behalf of companies like Radio Shack, Goodyear, and Office Depot. With the purchase would also come a credit card processing business, a call center operation, and Hurley State Bank of Sioux Falls, S.D. Associates has announced $6 billion of acquisitions this year, including Beneficial Corp.'s Canadian operations, and chairman and chief executive officer Keith W. Hughes said more may come. "We would hope to be able to continue to have more private-label oil operations in our portfolio," which already includes Amoco and Texaco, he said Monday. SPS will bring Conoco and Phillips. Dallas-based Associates, with $6.4 billion of credit card receivables, ranks 15th among U.S. bank card issuers, according to The Nilson Report. It also has $1.5 billion of private-label balances. SPS, based in Riverwoods, Ill., is a subsidiary of Novus Services, the Morgan Stanley Dean Witter unit that also offers the Discover card. The initials stand for Sears Payment Systems, harking back to the original owner, but an SPS spokeswoman said the company no longer has ties to Sears. She described the Novus-SPS relationship as "minimal." Assuming approvals from regulators, the deal is expected to close in the third or fourth quarter. Analysts said it seems to have little or no bearing on Morgan Stanley's plans for Discover, which battles MasterCard, Visa, and American Express for consumer-brand supremacy. "Morgan Stanley is portraying it as an SPS-driven event," said Mark C. Alpert, an analyst at BT Alex. Brown. "I think it would be a pretty big leap to say that this is indicative of what Morgan Stanley's plans are for Discover and Novus." Philip J. Purcell, chairman and chief executive officer of Morgan Stanley, said SPS "performed well" but did not fit with the company's "core securities, asset management, and general credit services business." Mr. Hughes said SPS' corporate partners - private-label issuing for more than 40 organizations and commercial card relationships with OfficeMax, Staples, Office Depot, and seven others - represent "extraordinary growth potential." SPS "is a natural addition to their existing private-label business," said David Hockstim, an analyst at Bear, Stearns & Co. "They're acquiring a number of significant relationships, and they say they've already discussed it with the merchants." SPS has 4,500 employees in five facilities that Associates said will go largely unconsolidated. Associates runs its Amoco business from Des Moines and its Texaco business from Houston and does not intend to combine operations with SPS, Mr. Hughes said. Though there "may be some technological things we can leverage," the transaction was not motivated by these potential economies. Associates spokesman Joe Stroop said his company relies on First Data Resources to handle the bulk of its accounts, though private-label processing is in-house. SPS is "a superb transaction processor (with) excellent technology, but we were buying the business, not the infrastructure," Mr. Stroop said. Robert L. Wieseneck, president and chief executive officer of SPS, said Associates will afford "the opportunity to offer a wider variety of products and services to our clients and their customers." SPS does not do Discover card processing, said Jean Fargo, a spokeswoman. It does some work on Novus cobranded cards, including those with Universal Studios and the Smithsonian Institution. Novus is "not huge to our business," she said. "We have a contract, and I assume we will continue to process for them." Mr. Alpert deemed the financial terms of the sale "do-able but not compelling." Though there may be some unseen cost savings or earnings, "we calculate that these assets would have to earn at least 3% on receivables to break even, which is a higher return than Associates appears to be getting," he said.
