EDS Acquisition Gives Fiserv 34% Share Of CU Market

Electronic Data Systems Corp., the once-preeminent credit union servicer, said it is ending its long-time relationship with the credit union movement with an agreement to sell its CU Industry Group to Fiserv.

The group, which provides data processing services for almost 1,000 credit unions, is the remnant of what was once a far-flung operation that serviced more than 2,500 credit unions.

"Essentially, we're putting our focus on our core IT business, information technology, that's really our focus," said Sean Healy, a spokesperson for the computer services giant.

Under the terms of the deal, Fiserv will pay $218 million in cash and EDS will retain $12 million in receivables for the operations. Fiserv will finance the deal, the company's seventh acquisition so far this year, with proceeds from a $100-million debt offering last month and available cash on hand.

More Than One-Third of CUs

The agreement propels Fiserv into the role of leading provider of back-office services for credit unions, expanding its already formidable data processing operations to almost 3,400 credit unions, according to Leslie Muma, president and CEO of the company. "This gives us four excellent new products. We will be investing heavily in these products, which, in our opinion they are in need of," said Muma.

The EDS operations, located in Plano and San Antonio, Texas, Phoenix, Madison, Wis., Orlando, Huntersville, N.C., and St. Louis, will continue to be run by Scott Butler, current president of the CUIG, and will be paired with Fiserv's six subsidiaries currently providing data processing for credit unions.

The 450 EDS employees in those locations will become Fiserv employees after completion of the deal.

Fiserv already provides either in-house or host processing for about 2,400 credit unions through its AFTECH, GalaxyPlus, USERS, SUMMIT, XP Systems and CUSA Technologies subsidiaries.

Fiserv does not plan to consolidate the nine different data processing operations, at least in the short-term, according to Muma. "We believe very strongly in choices and allowing the customers to make their own decisions," he said.

But in the longer term the company will be reviewing the operations to see where they can make cost-savings and improvements in efficiency, Muma said. "We may consolidate. That's one of the things we will take a look at."

The deal, which would give Fiserv a market share of around 34% in data processing services for credit unions, has been reviewed by the U.S. Justice Department for antitrust ramifications and has passed muster, Muma said.

For EDS, the deal represents the latest of another effort to right the company's finances and an exit from the credit union industry, for which it once provided a broad variety of services from asset/liability management software to ATM switching and funds transfer to data processing.

EDS Struck By Several Blows

EDS, which has been staggered recently by several major blows, including major losses on contracts with bankrupt WorldCom and United Airlines, said the latest restructuring will include as many as 2,700 lay-offs and the sale of non-core assets, such as the credit union operations, to raise as much as $500 million in capital.

Fiserv, with last fall's purchase of EDS' ATM switching and funds transfer business for $310 million, provided virtually all of the sought-after funds. Healy said the company is still looking at the possible sale of other non-core assets but has no deals on the horizon. "We'll continue to review all of our operations on an ongoing basis but no other initiatives have been announced," he said.

After completion of the deal Fiserv will provide some kind of service to 13,000 financial institutions, including more than half of the nation's 10,000 credit unions.