(From ATM&Debit News)
The automated teller machines and management contracts that TRM Corp. acquired from eFunds Corp. appear to be draining the life from the company.
The Portland, Ore., ATM independent sales organization reported a $101.2 million third-quarter loss, mainly because of a $96.8 million charge for a drop in the value of the eFunds ATMs, which TRM acquired in 2004 for $150 million. The charge led to TRM's defaulting on some of its loan covenants, though the company says it is negotiating its debt with lenders.
Jeff Sonnek, an analyst with Friedman, Billings, Ramsey Group Inc., wrote in a research note issued this month, "It is now abundantly clear that the eFunds transaction of 2004 could potentially cripple this company for good."
Mr. Sonnek said in an interview that part of the problem with the eFunds ATMs is a drop in the average number of transactions. Before the eFunds' deal, he said, each of TRM's ATMs averaged 400 transactions a month. The average fell to 338 transactions a month after the deal.
The eFunds machines "have diluted TRM's core units," he said.
Mr. Sonnek originally backed the eFunds deal. "At the time, it seemed to be a decent way to gain market share," he said.
Under that agreement, TRM bought 17,200 ATM contracts, including 2,000 ATMs, from eFunds. Only about 1,200 of those ATM contracts were for machines in the United States; the rest were in Canada and the United Kingdom.
TRM bought the eFunds contracts and ATMs at a time when transaction volume for off-premise ATMs was flattening, and some analysts valued eFunds' ATM business at the time at about $80 million, just more than half the price TRM paid.
Mr. Sonnek said that TRM has been unable to merge the two ATM operations' corporate cultures. The eFunds business was a merchant-owned portfolio, with individual merchants responsible for maintaining the ATMs and stocking them with cash. However, TRM employees are typically responsible for supporting and stocking TRM's company-owned ATMs, which are usually at large retailers' stores.
"TRM's former executives did not perform the needed due diligence before making a deal with eFunds," Mr. Sonnek said.
Jeffrey F. Brotman, TRM's president and CEO, realized it was in trouble and began cleaning up the mess shortly after he joined the company in March, Mr. Sonnek said. "You have got to give him credit," Mr. Sonnek said. "He wasn't here when TRM made the deal with eFunds. Now he's trying to sort it out."
Mr. Brotman has also said the loss of ATM locations continues to plague TRM's business. The machines' merchant owners sometimes unplug them or stop filling them with money, out of frustration with the falling transaction volume. Another problem is "poachers," who have stolen business from TRM by rerouting transactions from TRM's network to their own, Mr. Sonnek said.
At the end September, TRM was operating 17,588 ATMs, down 11% from 19,776 a year earlier, and Mr. Sonnek said he expected that number to decline further.
In the meantime, Co-op Financial Services of Ontario, Calif., which operates a network of 25,000 surcharge-free ATMs, is keeping a close eye on TRM, which announced a restructuring plan after its large third-quarter loss.
TRM provides 4,000 to 5,000 ATMs to Co-op's network, and TRM's problems, if they mount, possibly could affect access to those ATMs, analysts speculate.
James A. Hanisch, the executive vice president for network operations and corporate development at Co-op, said of TRM, "We're not gravely concerned, but we will be watching them very carefully." Co-op's contract with TRM runs for another 18 months.
TRM could become easy pickings for hedge funds looking to do a buyout. Its shares have been trading below $2 all month, and in an ominous sign, the Waltham, Mass., "vulture fund" DDJ Capital Management has acquired a 14% stake in TRM. Vulture funds specialize in buying stock in companies near bankruptcy. Calls to DDJ were not returned.
