NEW YORK, Jan 26 (Reuters) - Payment services group First Data Corp. (FDC.N: Quote, Profile, Research) on Thursday unveiled plans to spin off fast-growing Western Union, the world's largest money transfer provider, but the company will keep its slower-growth card-issuing and merchant-processing units.
First Data hired investment bank Morgan Stanley last November to review its struggling card unit and later expanded the review. Even so, spinning off Western Union came as a surprise.
The company plans a 100-percent, tax-free spin-off to shareholders, creating a publicly listed company with forecast annual revenue growth in the mid-teens. No terms were given.
Chief Executive Ric Duques, who returned from retirement in November to help revamp the company, said the move will appeal to a wide variety of shareholders and brings an end to the company's strategic review.
"There could be some shift of shareholders ... but there were too many synergies between the card business and our merchant business to ignore," Duques told Reuters.
Western Union, a 155-year-old company that built the first transcontinental telegraph line during the U.S. Civil War, accounted for about 40 percent of First Data's 2005 revenue of $10.5 billion. The unit's revenue rose 10 percent in the year.
Individual customers use Western Union's network of over 225,000 agent locations in more than 195 countries to wire money. The rising number of expatriate workers sending money home, particularly to developing countries, is driving growth in the money transfer market, analysts said.
SPLIT WELCOMED
For First Data's remaining merchant-processing and card-issuing divisions, the company is targeting combined revenue growth of about 8 percent. Duques could not put a market value on Western Union but said there were only four other companies in the world of similar size and financial profile; these, on average, were valued at about $27 billion
Following the deal, Denver-based First Data said it would reorganize into three divisions -- financial institution services, commercial services and international.
The spin-off was designed to help boost First Data's share price, which has lagged competitors over the past year. Its shares had risen about 5.8 percent to Wednesday's close while the S&P Data Processing and Outsourced Services Index <.GSPTKDP> tracking its peers has risen 9.7 percent.
News of the Western Union spin-off sent First Data shares up 5.5 percent to $45.35 on the New York Stock Exchange.
Duques said First Data had decided to keep its U.S. card unit as there was much overlap with its merchant business but it will seek to strengthen the division, cutting $75 million in costs over the next two years after recent job cuts.
Analysts said the transaction made sense for shareholders as First Data's parts were worth more than the whole and Western Union had little in common with the others.
"We think Western Union will be more nimble on its own," said Morningstar equity analyst Mark Weber.
Dan Schatt, a senior banking analyst with Boston-based financial research and consulting firm Celent, said this was "somewhat akin to a tale of 'Beauty and the Beast.'"
"This should help transform First Data into the prince it once was and return to its core transaction processing business," Schatt said.
Duques said the company expects to complete the spin-off in the second half and will update shareholders on terms and timing when it reports first-quarter results in April.
Christina Gold, who currently runs the business, will become Western Union's chief executive. The announcement came as First Data posted a 14 percent drop in fourth-quarter net income to $397.9 million, or 52 cents a share, which fell short of expectations largely due to restructuring charges.
I love this line...
"Individual customers use Western Union's network of over 225,000 agent locations in more than 195 countries to wire money. The rising number of expatriate workers sending money home, particularly to developing countries, is driving growth in the money transfer market, analysts said"
Yeah right, no way in hell these guys make more money off gambing than anything else...
First Data hired investment bank Morgan Stanley last November to review its struggling card unit and later expanded the review. Even so, spinning off Western Union came as a surprise.
The company plans a 100-percent, tax-free spin-off to shareholders, creating a publicly listed company with forecast annual revenue growth in the mid-teens. No terms were given.
Chief Executive Ric Duques, who returned from retirement in November to help revamp the company, said the move will appeal to a wide variety of shareholders and brings an end to the company's strategic review.
"There could be some shift of shareholders ... but there were too many synergies between the card business and our merchant business to ignore," Duques told Reuters.
Western Union, a 155-year-old company that built the first transcontinental telegraph line during the U.S. Civil War, accounted for about 40 percent of First Data's 2005 revenue of $10.5 billion. The unit's revenue rose 10 percent in the year.
Individual customers use Western Union's network of over 225,000 agent locations in more than 195 countries to wire money. The rising number of expatriate workers sending money home, particularly to developing countries, is driving growth in the money transfer market, analysts said.
SPLIT WELCOMED
For First Data's remaining merchant-processing and card-issuing divisions, the company is targeting combined revenue growth of about 8 percent. Duques could not put a market value on Western Union but said there were only four other companies in the world of similar size and financial profile; these, on average, were valued at about $27 billion
Following the deal, Denver-based First Data said it would reorganize into three divisions -- financial institution services, commercial services and international.
The spin-off was designed to help boost First Data's share price, which has lagged competitors over the past year. Its shares had risen about 5.8 percent to Wednesday's close while the S&P Data Processing and Outsourced Services Index <.GSPTKDP> tracking its peers has risen 9.7 percent.
News of the Western Union spin-off sent First Data shares up 5.5 percent to $45.35 on the New York Stock Exchange.
Duques said First Data had decided to keep its U.S. card unit as there was much overlap with its merchant business but it will seek to strengthen the division, cutting $75 million in costs over the next two years after recent job cuts.
Analysts said the transaction made sense for shareholders as First Data's parts were worth more than the whole and Western Union had little in common with the others.
"We think Western Union will be more nimble on its own," said Morningstar equity analyst Mark Weber.
Dan Schatt, a senior banking analyst with Boston-based financial research and consulting firm Celent, said this was "somewhat akin to a tale of 'Beauty and the Beast.'"
"This should help transform First Data into the prince it once was and return to its core transaction processing business," Schatt said.
Duques said the company expects to complete the spin-off in the second half and will update shareholders on terms and timing when it reports first-quarter results in April.
Christina Gold, who currently runs the business, will become Western Union's chief executive. The announcement came as First Data posted a 14 percent drop in fourth-quarter net income to $397.9 million, or 52 cents a share, which fell short of expectations largely due to restructuring charges.
I love this line...
"Individual customers use Western Union's network of over 225,000 agent locations in more than 195 countries to wire money. The rising number of expatriate workers sending money home, particularly to developing countries, is driving growth in the money transfer market, analysts said"
Yeah right, no way in hell these guys make more money off gambing than anything else...
