First Data Corp. expects its new joint venture with Bank of America Corp. to contribute $300 million to its revenue in the second half of this year and $700 million in 2010, Michael D. Capellas, its chairman and chief executive officer, said Friday.
The Denver company, the nation's largest payment processor, also announced that it plans to move its global headquarters to Atlanta, where the venture, Banc of America Merchant Services LLC, will also be based, and where Capellas and Phil Wall, First Data's chief financial officer, already live.
"This will actually be the first time in the company's history we've all been together," Capellas said during a conference call Friday.
First Data already has a significant presence in Atlanta, with 750 employees, and expects to maintain its operations in Denver and in Omaha.
And though First Data has already incorporated Bams, as executives call the venture, into its consolidated balance sheet for reporting purposes, the company posted another quarterly loss Friday, its seventh in the eight quarters since it was acquired in September 2007 by the private-equity firm Kohlberg Kravis Roberts & Co.
Capellas said the integration of the two merchant processing operations would take 18 months, before Bams begins to contribute to the bottom line.
First Data uses adjusted earnings before interest, taxes, depreciation and amortization as its preferred measure of its operating performance.
Its interest expenses have been heavy since the $29 billion KKR buyout in September 2007. Its third-quarter 2007 report even separated out its $56.5 million profit from July 1 to Sept. 24, the day the sale closed, and a subsequent $28.7 million loss from Sept. 25 to Sept. 30.
Since then, First Data's bottom-line losses have ranged from $164.4 million to $3.2 billion; the latter figure was because of a fair-value writedown in the third quarter of 2008, after JPMorgan Chase & Co. broke up the Chase Paymentech Solutions joint venture that had been 49% owned by First Data.
But EBITDA has come in consistently above $600 million, except in the first quarters of the past two years. This year, the first quarter was especially weak, with EBITDA of only $491 million, when a seasonal post-holiday slowdown was compounded by the credit crunch.
In the current quarter, EBITDA fell 7%, to $607 million, but Capellas said, "The economy appears to be stabilizing."
Revenue fell 1%, to $4.3 billion.
First Data reported second-quarter cost reductions of $28 million, including 750 job cuts, and the company said it added 127,000 domestic merchant locations and three independent sales organizations. The company said it lost one major customer, which it did not name, but it received a $15 million termination fee.
The B of A deal is an example of First Data's typically complicated organization structure, which features a variety of alliances and joint ventures with bank partners. (A spokesman said that the company does not disclose the number of such arrangements, but First Data's umbrella includes more than 125 units that file reports with the Securities and Exchange Commission, including multiple entities related to its Star Systems debit unit and its TeleCheck check-verification unit.)
The Bams venture, 48.45% owned by First Data and 46.55% owned by B of A, also has a 5% owner, Rockmount Investments LLC, an investment vehicle controlled by a third-party that the companies have not identified.
But First Data disclosed in an SEC filing Friday that it also contributed $128.7 million to Rockmount, which then invested $321.7 million into Bams.
As Wall said on the call, "There were a variety of business, accounting and tax reasons for structuring it that way."
Rockmount's controlling investor also will have the rights to require Bams to buy out its interest during a specified period of time after the fourth quarter, and the first and second quarters of 2010, and under certain conditions, later periods, the filing said.
First Data's main contribution to the Bams venture was its interest in the Chase Paymentech portfolio, but First Data said it also contributed other assets.