Wednesday , June 26, 2019

First Data Rejected Overtures From ‘Party A’ Before Accepting Fiserv’s Merger Offer

First Data Corp. began talking with a potential merger partner identified only as ‘Party A’ more than a year before Fiserv Inc.’s $22 billion takeover offer for the big payment processor was announced, according to a proxy statement Fiserv and First Data filed this week.

The lengthy document—more than 300 pages—details financial and other information pertinent to the pending merger, including a history of how First Data and Fiserv got together. It says First Data’s board of directors and senior management frequently discussed “potential strategic alternatives” for the company, especially after its October 2015 initial public offering.

And from time to time, First Data chief executive Frank J. Bisignano and Scott C. Nuttall, the lead director of First Data’s board and co-president and co-chief operating officer of Kohlberg Kravis Roberts & Co. L.P.—the investment firm that took First Data private in a $29 billion leveraged buyout in 2007—talked with CEOs and directors of financial institutions and financial-services technology companies about “various potential strategic and commercial opportunities involving First Data,” the filing says. Nuttall, whose firm still holds most of First Data’s voting stock, took a “leading role” in this effort due to his extensive industry connections.

KKR’s Nuttall played a key role in arranging the Fiserv-First Data marriage.

“In this regard, between December 2017 and April 2018, First Data explored a potential business combination transaction with a company involved in the financial-services industry, which we refer to as Party A,” the proxy statement says. “In December 2017, a representative of Party A reached out to Mr. Bisignano to discuss the possibility of the potential transaction.”

Party A submitted a non-binding cash-and-stock “indication of interest” for First Data in March 2018, which Bisignano rejected as too low. The suitor then quickly returned with a higher non-binding offer in a merger plan that would have made Party A’s CEO the CEO of the combined company. That prompted numerous meetings and phone calls among Party A and First Data’s top executives and board.

Ultimately, First Data’s board last April rejected Party A’s offer over “concerns regarding valuation, the culture and fit between the two companies, potential execution and integration risks, and Party A’s position with respect to the management of the combined company,” the filing says. Party A’s CEO contacted Bisignano several months later about restarting merger talks, but on terms no different from the earlier ones, so nothing happened.

Despite the failure to strike a deal with Party A, the leadership of First Data, which has $17 billion in debt left over from the LBO, had the merger bug.

“The First Data board and management continued to believe in the potential benefits of a strategic combination of First Data with a complementary financial-services technology company, including because of the potential for revenue synergies and cost savings, as well as the prospect of achieving normalized debt levels and enabling First Data to invest further in its business, which could result from such a combination,” the filing says. “To that end, on Sept. 27, 2018, Mr. Nuttall called Jeffery W. Yabuki, the president and chief executive officer of Fiserv, to raise the topic of exploring a potential business combination transaction between Fiserv and First Data. Following his conversation with Mr. Nuttall, Mr. Yabuki requested a meeting with Messrs. Bisignano and Nuttall during a forthcoming visit by Mr. Yabuki to New York City.”

The filing doesn’t say what happened at that initial meeting, but a couple of weeks later Yabuki contacted investment bank J.P. Morgan “and asked it to prepare a preliminary presentation on First Data.”

What ultimately resulted from Nuttall’s first call was Brookfield, Wis.-based Fiserv’s $22 billion all-stock offer for First Data announced Jan. 16. Fiserv shareholders are scheduled to vote on approving the merger April 18.

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