American Express Seeks to Buy out Data Processing Firm
Weinstein, Michael, American Banker
NEW YORK -- American Express Co. has proposed that First Data Resources Inc. of Omaha, Neb., become a wholly owned subsidiary of the diversified financial services firm and form the basis of a new data processing unit.
American Express Travel Related Services Co., a subsidiary, already owns 75% of First Data's shares, and Amerian Express proposed that First Data acquire the remaining 25% of its shares at $36 per share, or about $225 million.
The form, terms, and timing of the transaction are yet to be determined, American Express said.
At midday Thursday, FDR's stock, which trades over the counter, was up more than three points, to over 35.
"We have decided to further strengthen our commitment to the information-processing industry, and should this transaction be completed, we plan to create a new unit in our Travel Related Services Co.," said Louis V. Gerstner Jr., president of American Express Co.
The Travel Related Services Co. -- the company's biggest and most profitable subsidiary -- includes its charge card, travelers check, and travel products.
"We have numerous opportunities -- for example, in point-of-sale electronic services and telemarketing -- to draw upon the specialized capabilities of FDR, and there will be even more in the future," Mr. Gerstner said.
First Data runs one of the biggest credit card processing operations in the country, serving some 15 million accounts. About 250 banks are customers for this service, and many more are served as agents of those banks.
American Express Travel Related Services acquired First Data as a wholly owned subsidiary in 1980 for an estimated $80 million. Then, in 1983, the firm raised $56 million by selling off four million shares at $14 per share.
First Data's earnings have grown at a compound rate of about 40% since 1980, said Walter G. Montgomery, senior vice president of corporate communications at American Express.
In 1984, First Data had revenues of $203 million and net income of $27 million.
Mr. Montgomery would not say exactly what services American Express new data processing unit will offer.
"I would view this generally as a trend we've seen very broadly in the financial services industry, for financial players as well as nonfinancial players to get into the financial transaction processing business," observed Joel P. Friedman, a partner at Arthur Andersen & Co. in San Francisco. …