Is First Data Corp. finally getting serious about selling a portion of its card-issuing division?
Some analysts say the Denver transaction processor’s chairman and chief executive officer, Charles T. Fote, may have tipped his hand last week during its third-quarter earnings call, when he said the division’s output services unit may not be a critical part of his company.
Card-issuing services have long been First Data’s financial Achilles’ heel. On Friday First Data released its third-quarter results, and the two other divisions — merchant services, and payment services, which houses its revenue powerhouse Western Union Financial Services Inc. — produced the bulk of the revenue.
The card-issuing division was again the laggard, and Kartik Mehta, an analyst for First Horizon National Corp.’s FTN Midwest Securities, asked during the conference call whether the company would consider selling all or part of the division.
Such questions come up regularly, and Mr. Fote generally gives a standard response: First Data will consider all options to enhance shareholder value.
But this time he gave a more substantial answer and singled out the output services unit as having less strategic value to the card issuance division. The output services production facilities in Omaha emboss plastic cards and mail statements and other information to customers.
“Those are pretty much stand-alone businesses, in that the processing company does not have to be directly related to the output services,” Mr. Fote said. Output services are “different than running the cardholder update program, as we do for bank card clients and private-label clients, which may be more strategic to First Data.”
Though he stopped short of announcing a decision about selling the unit, he said, “We’re looking at it hard. I don’t have a good answer for you yet. I will have an answer in the next several weeks, or a few months.”
The other businesses in the card-issuing division are transaction processing for bank cards, retail cards, and a part of the company’s Star debit network, the remainder of which is housed in merchant services.
Donna Pennington, a spokeswoman for First Data, said its policy is not to discuss potential acquisitions or divestures. “We have never disclosed or said anything” publicly or in a Securities and Exchange Commission filing about whether output services has been singled out for a potential sale.
The output services unit has “always been part of what First Data has done,” Ms. Pennington said, though the services are sometimes provided to issuers that do not use First Data’s other processing services.
Mr. Mehta said in an interview Friday that Mr. Fote seems to be mulling a sale. “Output services is more of a commodity business, more factory-type of work.”
Robert J. Dodd, an analyst for Regions Financial Corp.’s Morgan Keegan & Co. Inc., said that this was the first time First Data has discussed the strategic value of output services, and that a sale would make sense.
“There are clearer synergies between other parts of … [the card-issuing division] and the rest of First Data, than there are between output services and the rest of First Data,” Mr. Dodd said.
“There’s been a lot of pressure on … [Mr. Fote] to do something with that business,” he said. “I would expect them to do more than just say ‘We’re working on it’ when it comes to the next analyst meeting in January, if not before.”
