Honor Technologies Inc. and Star System Inc., operators of two of the three largest automated teller machine networks, announced an agreement to merge.

The bank-owned companies said Tuesday that their boards approved a letter of intent last week. They expect to complete a formal agreement by Oct. 1 and obtain the necessary federal regulatory approvals to close the deal in mid-1999.

The transaction would be by far the biggest among the shared ATM networks that cropped up in the 1970s and went superregional with their larger bank members in the 1980s and 1990s. Honor and Star-the post-merger company name has not been decided-are going national in keeping with the industry's consolidation.

Emblematic of the trend, NationsBank, a major Honor participant, reaches into Star territory with its pending BankAmerica Corp. deal. Just this week two Honor banks-SunTrust Banks Inc. and Crestar Financial Corp.-announced a merger.

"The financial industry as a whole is probably demanding more every day that their distribution to their customers be simplified," said Ronald V. Congemi, president and chief executive officer of Star. "This is-in scale-a very good way to do that."

With nearly 80,000 ATMs from coast to coast, the merged system would be twice the size of the current No. 2, Electronic Payment Services Inc.'s MAC, which is mostly in the East and Midwest.

Honor and Star would also serve 250,000 point of sale locations. They would have 3,745 financial institution members with 79 million ATM/debit cardholders, and 65 million credit card holders.

Mr. Congemi, 51, would retain his titles after the merger and move from Star's headquarters in San Diego to the new corporate headquarters at Honor's base in Maitland, Fla. Thomas O. Bennion, his Honor counterpart, would retire from day-to-day responsibilities and be vice chairman of a combined board of directors.

Under Mr. Bennion, 59, Honor acquired or merged with eight networks since 1990, highlighted by a 1996 deal with Most in the Middle Atlantic region and a recent expansion as far west as Missouri with the purchase of BankMate.

"When you line up all the pieces and the parts, this thing fits together better than any one that we have done," Mr. Bennion said of the Star agreement.

The companies have built-in technical efficiency in that both use software from Deluxe Electronic Payment Systems of Wisconsin. Honor runs the software in-house; Star outsources it.

Star and Honor's strengths are seen as complementary. Star was a pioneer among ATM networks in expanding into the point of sale debit business, while Honor complemented its core business with support services like off- line card processing, terminal driving, and home banking.

With Mr. Congemi anointed as CEO, the companies have addressed important "social issues."

Noting that Mr. Bennion constantly pushed Honor to broaden its scope, Stephen S. Cole, president and chief executive officer of Chicago-based Cash Station Inc., said, "Not only does he get scale, but CEOs when they retire want to make sure they leave their baby with somebody with whom they feel comfortable. Ron is that guy."

The 15 owners of Star, a not-for-profit company, would gain equity in the new company, which, like Honor, would be for-profit.

The networks would not initially merge their interchange pricing structures. Under network rules, most Honor transactions cost 40 cents. At Star, the charge is 45 cents for on-site ATMs and 55 cents for those away from bank premises.

Observers expect them eventually to decide on a single brand name. Mr. Cole said it could "have the same level of awareness and loyalty that the Visa and MasterCard brands have." Visa U.S.A.'s plan to introduce an on- line debit service in the fall has raised concerns about the regionals' ability to compete.

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