First USA Inc. and its merchant processing subsidiary plan to raise up to $275.8 million by issuing more stock in the unit.

Analysts said the fourth-largest issuer of MasterCard and Visa would use the proceeds from selling four million shares of First USA Paymentech to fund its own core business. Paymentech is to sell 2.8 million primary shares and would use the income to pay for an acquisition and possibly gear up for another.

Paymentech will sell 2.8 million primary shares, and parent First USA Inc. will sell four million secondary shares, reducing its stake from 77% to 59% - or 57% if an overallotment option is exercised.

"The First USA secondary offering was surprising; they were adamant earlier this year that they did not want to reduce equity," said David S. Berry, director of research at Keefe, Bruyette and Woods Inc. "Six months ago, they said they would not do it."

Mr. Berry said the sale may be in response to the way the market is valuing First USA's credit card business.

Before a stock split, First USA, sold at 10.7 times earnings estimates for next year, accounting for a noncash amortization, he said. In comparison, stock for its key competitors MBNA Corp. and Capital One Financial Corp. traded at 15 times and 12 times earnings for the upcoming calendar year, respectively.

"The market has a poor view of (First USA's) bank card business," Mr. Berry said. First USA will likely use cash from the sale to fund its core business, he added, as well as financial services like mortgages, insurance, and a newly chartered thrift.

"It's been a great performer, but it has not gone to premium," said another analyst, who insisted on anonymity. First USA's price-to-earnings estimates have expanded, the analyst added, but they have not grown at the rapid rate of other issuers.

Following last week's announcement, First USA's stock traded up $1.37, while other credit card issuers remained flat, Mr. Berry said.

By mid-day Monday, First USA's stock rose/fell to xx.

First USA Paymentech went public in March with an initial offering of 6.1 million shares - priced at $21 - and raised $141 million.

With the secondary offering, shares will be priced at $37. The sale is expected to raise between $98.4 and $113.3 million for Paymentech and between $141.3 million and $162.5 million for First USA, if overallotment options are exercised.

In August, Paymentech, the third-largest processor of bank card transactions in the United States, acquired Gensar Holdings Inc., a third- party merchant processor, and its subsidiaries Gensar Technologies Inc. and FirstNet, for $170 million in cash.

"Gensar was the largest acquisition" Paymentech "ever made; it wiped them out," Mr. Berry said. "The new primary offering is to pay down the bank borrowing; they want to reload the equity base. It is designed to reload the balance sheet for more acquisitions."

"Paymentech is trying to fund its acquisition of Gensar, and it is getting ready for another acquisition," said Thomas Facciola, an analyst at Salomon Brothers. "First USA is looking for opportunities within its core (credit card) business."

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