Most of the banks that accepted big stakes in Concord EFS Inc. in return for the sale of their stakes in the Star Systems Inc. electronic funds transfer network have decided to cash out.
Concord EFS, the largest electronic funds transfer network in the United States and the only publicly held one, filed a registration statement on Thursday with the U.S. Securities and Exchange Commission for the proposed public offering of up to 24 million shares of common stock. Of that amount, 19.2 million shares are being sold on behalf of the former owners of Star Systems, which Concord acquired on Feb. 1.
The remaining shares include two million to be sold by the Memphis, Tenn.-based Concord plus an additional 3.17 million shares to cover over-allotment options granted to the underwriters. The offering will be managed by Salomon Smith Barney; Goldman, Sachs & Co.; William Blair & Co.; Banc of America Securities LLC; Bear Stearns & Co.; Merrill Lynch & Co.; and Morgan Keegan and Co.
One Star owner, Zions Bancorp of Salt Lake City, which had held an 8% stake in Star Systems and maintains other fairly considerable technology investments, will not participate in the offering, according to a spokesman at the bank, who declined further comment.
Timothy W. Willi, who is a financial technology analyst for A.G. Edwards & Sons, said that Zions could have been motivated to hold on by any number of factors. They might not want to pay the underwriting discount, and instead prefer to sell their shares privately. Or some might want to hold their shares because its a good investment.
For other banks that were major Star investors, the offering means the opportunity to cash out on their gains although first-quarter earnings at the companies already included accounting for the profits on their investments. Bank of America Corp., of Charlotte, N.C., was the largest investor in Star Systems with an 18.8% stake, an investment that netted it 4.5 million shares of Concord worth about $200 million, based on Concords $46 share price on Thursday afternoon.
The shares used in the transaction were unregistered, which necessitated the secondary offering and SEC registration before the banks could sell them.
A little over two years ago, Concord was a relatively small processing company that specialized in providing electronic payment and payroll services, primarily to trucking companies and convenience stores.
Since then, Concord has acquired three major electronic funds transfer networks MAC, Cash Systems, and most recently Star Systems. The first acquisition immediately made it a big player in the EFT industry. The last acquisition made it dominant in the online debit and automated teller machine processing industry. Concord has said it will integrate all three networks and eventually put them under the name Star. Last year the company reported revenues of $1.2 billion.
The growth has raised interest and concern among some bankers because it is the first time these EFT networks have not been controlled and operated directly by bankers. As a public company, Concords primary responsibility is to its shareholders rather than the banks, which are now simply clients of the network.
Concords absorption of Star gives it ties to 6,500 financial institutions, and connections to 180,000 ATMs and 720,000 point of sale terminals. Concords goal is to become a national network that can compete with Visas Plus/Interlink networks and MasterCards Cirrus/Maestro networks.