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Chase Paymentech Solutions LLC faces an uncertain future as the processor's two backers–First Data Corp. and JPMorgan Chase & Co.–ponder its fate.
And decisions do not appear to come easily in this case. In fact, First Data and Chase have granted themselves extra time to decide how to run Chase Paymentech, according to a yearly report First Data filed with the U.S. Securities and Exchange Commission.
Nothing in the filing seems to reveal how Chase Paymentech's future may look. Dallas-based Chase Paymentech may continue in its current form, or New York-based Chase may buy the 49% of the processor that Greenwood Village, Colo.-based First Data owns.
Uncertainty arose in September with Kohlberg Kravis Roberts & Co.'s buyout of First Data, also a processor.
The deal triggered a clause in the joint-venture contract that enables Chase to end the alliance if it chooses.
The contract expires in 2010. Chase and First Data formed Chase Paymentech in 2005.
First Data executives made no clarifying comments about Chase Paymentech during a conference call with analysts last week.
60 More Days
Upon the First Data buyout, the two Chase Paymentech owners began discussing how to run the enterprise. Since then, one or both of the companies–it is not clear from the First Data 2007 annual report–sought more time.
The two agreed to a 60-day extension, a Chase Paymentech spokesperson says, but she declined to say when the time period began or will end.
A First Data spokesperson says the extension gives the companies more time to work together.
If joint ownership ends, First Data has the right to receive 49% of Chase Paymentech's merchant contracts and 49% of the joint venture's sales force, according to First Data's 2007 annual report.
First Data says it would not expect the end of the alliance to affect its income from continuing operations or its earnings before interest, taxes, depreciation and amortization.
Based on the value of the 18.2 billion transactions Chase Paymentech merchants made in 2006, First Data stands to gain $323.7 billion in transaction dollar value and about 294,000 merchants should it sell its shares in Chase Paymentech.
Chase Paymentech says it has more than 600,000 merchants and nearly $1.3 billion in revenue in 2007. That represents a 6.6% increase over 2006 revenue of $1.2 billion.
First Data included Chase Paymentech financial results in its 2007 annual report.
Chase Paymentech, however, saw a much larger increase in net income than its revenue growth suggests.
Net income for 2007 was $582.4 million, up 26.7% over 2006 net income of $476 million.
Buyout Costs $720M
Analysis of the filing shows that Chase Paymentech also benefited in 2007 versus 2006 from lower depreciation and amortization costs, from
modest growth in interest income and from favorable exchange rates. Chase Paymentech does business in 140 currencies, the company says.
In the fourth quarter, First Data experienced 10% growth in the number of merchants it signed, which increased from about 139,000 added in the year-ago quarter to 154,000 in the fourth quarter of 2007.
Despite the growth in the Commercial Services segment, First Data overall had a loss of $273.2 million in the fourth quarter ended Dec. 31, a reversal from net income of $278.5 million in the same quarter of 2006.
The loss came despite an 11% increase in revenue, to $2.1 billion from $1.9 billion. First Data says it incurred costs of $499 million during the quarter after Kohlberg Kravis bought the company. Full-year merger costs were $720 million, First Data says.
For the year, revenue increased 14%, to $8.1 billion from $7.1 billion in 2006, the company says. Income from continuing operations in 2007 was $162.5 million, down 81% from $847.7 million in 2006.
First Data Commercial Services had fourth-quarter revenue of $1.2 billion, up 9% from $1.1 billion a year earlier.
For the year, Commercial Services revenue totaled $4.5 billion, a 10% increase from $4.1 billion in 2006, company financial reports indicate.
