Seeking more efficiencies and a place in the emerging business of electronic bill payment and presentment, DST Systems Inc., the mutual fund processing giant, has announced an agreement to buy USCS International for $874 million of stock.

USCS International, which publishes and processes paper-based bills for the cable television industry and others, and sells related software, would become an operating unit of DST Systems. USCS's $300 million of annual revenue would bring the combined company to $1.1 billion in revenues. It would have 8,000 employees.

The deal, announced last week and expected to close in the fourth quarter, is expected to add 4 to 5 cents to DST Systems' 1999 per-share earnings projection of $1.77.

Thomas A. McDonnell, president and chief executive officer of DST Systems, said the deal "will give us an opportunity to participate in some emerging markets for utility billing and other forms of billing."

The two organizations would meld their large-scale production and mailing facilities for improved efficiency. USCS International processes large volumes of cable bills during 10 days each month, and DST's statement production peaks during a different 10 days.

"We thought it was a great fit," Mr. McDonnell said.

Stephen McClellan, an analyst at Merrill Lynch & Co., said USCS "is a leading-edge company in terms of moving to electronic bill-paying capabilities and technologies."

It has been establishing relationships with processors that specialize in electronic bill presentment and payment, he added. Its subsidiary, International Billing Services, is on the advisory board of MSFDC, the joint bill transmission venture of Microsoft and First Data Corp. It also has alliance agreements with Intuit Inc. and Checkfree Corp.

To the extent that bill presentment "takes hold in the future," Mr. McClellan said of USCS, "they will play a major role."

Richard Weingarten, analyst at Salomon Smith Barney, said the deal would improve DST's position as an outsourcer of billing services, particularly as interest grows in electronic bill presentment. Billers could turn to DST as a single source rather than having to deal with numerous bill payment processors.

"This really builds up the bill presentment and statement production for DST," he said.

Kansas City, Mo.-based DST Systems, with revenue of $371 million in the first six months of 1998, would exchange 0.62 share of its common stock for each one of USCS International.

DST Systems valued USCS International at $37.51 a share, a 44% premium over its closing price before the announcement late last Wednesday.

USCS International's shares rose $7.3125 last week, closing Friday at $30, while DST's fell $3.9375, to $56.5625.

A DST Systems subsidiary, DBS Systems Corp., provides subscriber management services to DirecTV, a satellite television service. Another unit, Output Technologies Inc., sells statement-related services mostly to financial services companies.

Rancho Cordova, Calif.-based USCS had $164 million of revenue through June.

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