First Data Corp.'s top executive plans to set up a corporate division to combine Concord EFS' debit businesses with First Data's merchant processing operations -- and he would use the combined organizational might to woo banks that recently left Concord for Visa.
In a conference call Tuesday to discuss fourth-quarter and full-year earnings, and his first public comments on how he plans to absorb Concord, Charles T. Fote, the chairman and chief executive officer of First Data, said the deal for Concord is slated to close Feb. 27.
After the acquisition, one of the first things on the agenda would be to pay house calls on all customers of Concord's Star debit network -- including those that have left or plan to leave -- and make the argument that the newly created "enterprise payments" division can provide more services at a lower cost, Mr. Fote said.
"We will ram these two organizations together as fast as we can," he said. "What we do on what date is going to affect" how much the purchase would lower First Data's earnings this year, Mr. Fote said.
The deal "has a lot of moving parts," he said. For example, he mentioned that both First Data's merchant services division and Concord have offices in Maitland, Fla. "We will do a combination. I think that one could end up being a P&L charge."
Many such issues would need to be decided in short order, Mr. Fote said, but a blueprint for the deal has been drawn up. Concord's sales and service people would join forces with First Data's merchant processing and debit services staff and reporting to Scott Betts, currently the president of First Data's merchant services division.
First Data has three main divisions: merchant services, Western Union, and card issuer processing. It also has an international unit and a small division called emerging payments that houses the eONE Global business.
Combining First Data's merchant processing with Concord's debit services would allow First Data to use its current merchant contracts to drum up new business for Star, and perhaps to win back disaffected Star customers, Mr. Fote said.
A First Data spokesman said the exact financial reporting structure of business segments would not be announced until April, but the enterprise payments group is meant to get different groups working together quickly.
Among the banks that have recently switched allegiance from Star to Visa's Interlink are Wells Fargo & Co., Wachovia Corp., and U.S. Bancorp; such defections have contributed to the drop in the deal's price.
The Justice Department challenged the deal late last year, and First Data agreed to sell its NYCE Corp. division as a condition of buying the rival debit processor. Mr. Fote did not give any details of that process Tuesday, but he did say he considers debit processing to be as much of a utility service as the credit card processing his company handles for so many banks and merchants.
"Banks aren't selling their deposit accounts under a brand name," he said. "They aren't saying Star is the brand, or Visa. If we can drive down payment costs, people win on both sides. That will be a well-balanced payment system."
And First Data would be "very aggressive" in its efforts to retain Concord business coming up for renewal, Mr. Fote said.
In a sort of super-sized analyst meeting that lasted a full three hours, Mr. Fote and other executives gave detailed, segment-by-segment explanations of how various businesses performed last year.
Fourth-quarter earnings rose 20% from a year earlier, to 55 cents a share, or $401.6 million. Western Union led in fourth-quarter revenue at $972.5 billion, up 13%. Merchant processing services revenue rose 18%, to $826 million; card-issuing services fell 1%, to $518.1 million; and emerging payments dropped 9%, to $38.1 million.
NYCE, which is being run independently while First Data seeks a buyer, generated net income of $3.9 million, or 2 cents a share.
Full-year net income rose 17%, to $1.88 per share, or $1.4 billion. Mr. Fote predicted 2004 net income of between $2 and $2.18 a share, with costs related to Concord's integration cutting up to 10 cents off earnings per share.
Mr. Fote, who has been running the card issuer services division for the last 11 months, introduced James Schoedinger, the executive he picked last month to head that group. Mr. Schoedinger, an adherent to the Six Sigma management philosophy, should fit in well at First Data, where executives are accustomed to a daily 6:30 a.m. call to discuss volume reports and customer issues, according to Mr. Fote.
He also announced that Providian Financial Services Corp. had hired the card issuer services division to conduct statement services and plastics personalization.
A spokesman for Synovus Financial Corp.'s Total System Services Inc. said it continues to process cards for Providian, which has moved only the statement and personalization elements of its business to First Data.
Mr. Fote did not rule out the possibility of selling parts of his company. "We will focus on those opportunities that provide highest growth. We will exit those that don't fit."
When First Data reports its first-quarter earnings April 22, it will include results for Concord, he said.
Investors gave a lukewarm response to the earnings news. By midday First Data's stock had dropped 1.9%.
Gregory Smith, an analyst at Merrill Lynch Global Securities Research and Economics Group, wrote in a research note that the earnings were in line with expectations and "perhaps even better than recent sentiment on the stock may have implied." First Data's key risks would include "greater than expected competition, any significant economic deterioration, and merger-related risks in the pending integration of Concord EFS."
