Gemplus Group of France, the leading maker of plastic cards with computer chips inside, announced an agreement Thursday to acquire the card factories of Minneapolis-based DataCard Corp.
The deal, an aspect of what the two privately held companies called a broader strategic alliance, brings Gemplus the world's largest producer of plastic payment cards. In North America, DataCard is the sixth-largest, according to The Nilson Report.
After giving up card manufacturing, DataCard will concentrate on what it calls core businesses - card-embossing and personalization systems and transaction terminals - that account for about three-fourths of its $400 million of annual revenue.
Gemplus, a company with about $300 million of annual revenue that was founded in France seven years ago, will gain factory capacity to rival that of Schlumberger, a French smart card pioneer, which bought the U.S. leader, Malco Plastics, late last year.
The foreign smart card companies' invasion, which began with the Bull Group of France in the 1980s, may be nearing completion as anticipation builds for a chip card explosion. Another French company, Solaic, and two German companies, Giesecke & Devrient and Orga, have opened offices or made smaller acquisitions here.
The DataCard agreement "puts us in very good position for the launch (of smart cards) in the U.S. market," said Dan Cunningham, president and chief executive of Gemplus Card International Corp., the parent's North American subsidiary in Gaithersburg, Md.
Mr. Cunningham said it made more sense to buy "than to start up our own manufacturing company." DataCard has a factory in Pennsylvania and three others in Europe, as well as five service bureaus.
Mr. Cunningham denied that Gemplus' decision was influenced by Schlumberger and Malco. But Lawrence Linden, a former Malco chief executive and now a card industry consultant in Woodbine, Md., said, "The deal signifies (Gemplus') intention to compete with Schlumberger."
"It's a very wise move," Mr. Linden said. Gemplus is "upgrading technology without making major investments in new plants."
Glenn Highland, DataCard's president and chief executive officer, said, "In terms of contact with banks and other customers," the deal is "larger than Schlumberger's."
The dollar value of the deal is hard to pinpoint. Sources have estimated Schlumberger bought Malco for slightly more than Malco's annual revenue of $27.5 million; a comparable measure would value DataCard's production business at more than $100 million.
The latter calculation would be complicated by the fact that DataCard and Gemplus have a common shareholder - the Quandt family of Germany - and their deal included exchanges of both stock and businesses.
The purchase will be completed in 60 to 90 days, pending board votes and various government approvals.
Just as Gemplus will take control of DataCard's factories, DataCard will acquire Gemplus' personalization equipment for smart cards. It intends to market these systems to banks and third-party processors, augmenting its worldwide dominance in card personalization functions.
By entering into the long-term strategic partnership, Gemplus and DataCard will share technology for both standard magnetic stripe cards and smart cards, said Mr. Highland.
Gemplus already has two card factories in France and one in Germany, producing 20 million units per month. Prepaid telephone cards make up the bulk of that business.
Mr. Cunningham said he expects the making of smart cards with more sophisticated microprocessor chips to "grow very rapidly."
Despite the momentum behind smart cards, spurred by several pilots and by the bank card associations' international standardization efforts, Mr. Linden said, manufacturers are not nearly ready to mass-produce chip cards for the U.S. market.
But Mr. Highland said the technology is evolving fast in terms of cost reduction and speed of producing and issuing cards. The main obstacle to the "smart card revolution," he said, is the cost of changing infrastructure in terms of back-office and point of sale equipment.