Investors gave a thumbs-up to Equifax Inc.'s plan to spin off its payment services division, which processes checks and credit cards.
The idea is to tap into enthusiasm for high-growth businesses.
"It's a good move, " said Bradley Berning, a senior research analyst with U.S. Bancorp Piper Jaffray. "They needed to do something to unlock shareholder value."
Equifax announced the plan last Monday. Its stock closed last week at $29.19, up 7.7% from the preceding Friday.
The company plans to retain its 102-year-old information services division, including, its vast databases of consumer credit information. That division generates more revenue than payment services - $1.1 billion versus $736 million in the fiscal year that ended June 30.
But Equifax predicts that payment service revenue will grow faster in 2001- by 13% to 15%, versus 8% to 10% for information services.
"The two independent companies will be able to grow faster on their own than as a combined entity, and the payment services division will have a higher growth rate in the long term," Mr. Berning said. He said that that it will also be easier for investors to value the payment and information businesses as two separate entities.
The divisions are already structured like separate companies, said Phil Mazzilli, Equifax's chief financial officer. By continuing to focus on their own sales forces, customers, technologies, and business strategies, each will be able to increase its growth rate, he said.
At least one analyst had doubts, however. Andrew Jeffrey, a senior analyst at Robertson Stephens, lowered his rating on Equifax from "long-term attractive" to "market performer" after the announcement. "The spinoff adds more operational risk than it does value," he said.
Mr. Jeffrey said he doubted that payment revenues would accelerate when the division is spun off.
He said comparable businesses already trade at about Equifax's value. First Data Corp. and Nova Corp., both payment companies based in Atlanta, trade respectively at 16.5 times and 11.5 times his estimated 2001 earnings. Equifax's combined business trades at about 15.6 times his estimate, leaving little room to add value, he said.
Equifax has been down this road before. In 1997 it spun off its insurance services group - which provided risk management information to insurance companies, corporations, and government agencies - creating ChoicePoint Inc., which is based in Alpharetta, Ga.
Equifax's stock climbed in the months after the ChoicePoint spin-off, to a high of $44 in December 1998, before a gradual decline. ChoicePoint, which began trading at just over $17, currently trades at $44.25.
Other bank technology companies, including Deluxe Data Corp. and HNC Corp., have tried spinoffs, but it is too early to tell if they have been successful.
Deluxe still owns 82% of eFunds Corp., which it spun off in June. The new company's growth will be limited until a stock exchange offer with Deluxe is completed sometime this quarter.
Similarly, Retek Inc., which was spun off from HNC last fall, was still 85% owned by HNC until Oct. 2, when it became a fully independent company.
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