The mutual termination last week of First Data’s planned $1 billion-plus acquisition of prepaid/gift card kingpin Interactive Communications (InComm) was a “step-child” of the credit crisis as well as First Data’s own immediate cash needs, according to Aite Group research director Gwenn Bezard.
First announced in April, the deal was intended to provide First Data with placement opportunities of its clients’ prepaid cards at more than 145,000 retail locations at Blockbuster and Starbucks stores. In place of the buyout, First Data and InComm have worked out a distribution agreement that will involve prepaid card processing support, program management and a distribution network that still allows First Data retail merchants to sell at InComm in-store prepaid displays.
In the end, the economic environment overshadowed First Data’s plans. First Data’s second-quarter results in August showed that while revenues and adjusted earnings were up—the latter up seven percent to $653 million—the company was burdened with net losses of $161 million due to incremental interest expense and depreciation write-offs of $391 million stemming from its 2007 acquisition by Kohlberg Kravis & Roberts. First Data this month also completed the dissolution of the Chase Paymentech merchant-acquisition joint venture with JPMorganChase. It plans to release third-quarter earnings this week.
“It is likely that FDC has opted to preserve its cash and lines of credit,” says Bezard. “Deciding not to acquire InComm is probably a wise decision in that regard. I do not expect this termination will affect FDC customers since the acquisition was very much an extension of their existing capabilities.”