First Data Corp. said last week it has agreed to acquire Concord EFS, marrying the country's two largest electronic funds transfer networks and establishing the dominant position in the movement of money across the world.
The deal will bring the NYCE network, majority owned by First Data, and Star Systems, MAC and Cash Station, all owned by Concord EFS, under one roof covering more than 9,000 financial institutions, including some 3,500 credit unions.
The effects of the corporate marriage had yet to be digested last week for credit unions, which have seen the rapid consolidation in the EFT market erase a dozen smaller regional networks over the past five years, leaving just The CO- OP Network and The Credit Union 24, itself left at the alter last month by Concord.
Robert Rose, chief executive of The CO-OP, said last week it was too early to project the impact of the First Data deal but suggested it could rekindle his company's initiative to merge with Credit Union 24. "I think both of us should be thinking about what this all means for our long-term future," he said.
James Park, head of Credit Union 24, said the Fist Data deal will change the rapidly consolidating marketplace overnight, requiring networks like his to seek out new alliances and partnerships to maintain a competitive balance for credit unions. Though his board took the network off the market after last month's collapse of Concord's $30-million acquisition, he did not rule out a future alliance with The CO-OP. "At some point there might be other options out there, whether it's the CO-OP or some other entity, we're going to look at what they might be," he said.
Merger Talks Didn't Affect Deal
Park insisted the merger negotiations between First Data and Concord, which have been ongoing for several months, did not affect their deal with Concord and that they were unaware of Concord's talks with Fist Data.
Once the First Data deal is complete the merged entity would account for about 70% of point-of-sale and ATM transactions in the U.S. The Justice Department is expected to scrutinize the deal closely, possibly even requiring First Data to divest itself of its controlling stake in NYCE.
The size of the new entity will put new pressures on pricing and access for credit unions and other EFT users, acknowledged Rose. He predicted "a lot of upheaval in the marketplace," when the deal is completed in the fourth quarter.
"We'll have to wait and see how FDR positions themselves in the marketplace, specifically with us and with credit unions. We have a lot of transactions that flow through Star," said Rose.
Whatever the long-term effects, The CO-OP will benefit in the short run. That's because The CO-OP still holds more than 260,000 Concord shares valued at almost $4 million under the announced purchase price of $13.87 a share. Those shares were left over from the 634,520 Concord shares valued at $31.4 million The CO-OP acquired in 2001 when Concord bought its stake in Star Systems, which now forms the nexus of Concord's nationwide EFT network. "It doesn't hurt us, either way," said Rose. Since First Data is exchanging its own shares for Concord, The CO-OP will probably choose to retain the First Data stock for its investment value, he said. Immediately following Concord's acquisition of Star, The CO-OP reaped $29 million with the sale of 500,000 Concord shares, leaving it with about 130,000 shares, which doubled after Concord's two-for-one stock split last year.
Several credit unions also obtained stock in Concord after the Star acquisition but all of those shares have been sold since then. The deal at its price, put at $6.7 billion, surprised many in the marketplace, where Concord was valued at more than twice that a year ago. But questions over the company's accounting practices and more recently, about their ability to resign major clients like Wells Fargo Bank, have pushed the stock down to five-year lows. Concord shares were trading as low as $7.80 a few weeks ago before climbing to $12 last week after news of the merger emerged.
The acquisition represents a further expansion of the First Data franchise, already the world's largest credit card processor, in the electronic funds market. The funds processor, spun-off from American Express in 1995 is now the parent of venerable money transferor Western Union, NYCE Corp., Internet funds services provider eOne Global, and Global Cash Access, which provides cash services to more than 150 casinos.