(March 28, 2008) After first trying to sell its merchant-processing business as a single unit, bankrupt Solidus Networks Inc., which does business as Pay By Touch, is expected to sell half of it to a big Utah-based merchant acquirer, Merrick Bank Corp., for $2 million, according to documents filed in U.S. Bankruptcy Court in Los Angeles.

Meanwhile, the Dow Jones publication VentureWire is reporting that a group of hedge funds and private-equity firms wants to buy San Francisco-based Pay By Touch for $4.4 million. Last week, Solidus shut down its best-known business, the Pay By Touch finger-identification biometrics authentication system installed in about 600 stores (Digital Transaction News, March 19). Solidus has labeled its biometrics and loyalty businesses, including S&H greenpoints, as “core,” and its merchant-processing and some other subsidiaries as “non-core.”

Merrick Bank apparently is picking up the third-party processing business known as Pay By Touch Processing Inc., or PBT Processing, according to documents filed March 21 in the bankruptcy court, which is overseeing Solidus’s reorganization. Yet to be sold is Pay By Touch Payment Solutions LLC, a New Castle, Del.-based independent sales organization with, according to recent filings, more than 60,000 merchants, half of whom are card-not-present merchants. (A Feb. 22 Merrick filing mentions about 70,000 merchants generating $1.5 billion in charge volume in the preceding quarter, implying a hefty $6 billion in annualized volume.)

A hearing to consider the PBT Processing sale had been scheduled for March 26, but Digital Transactions News has not yet confirmed its outcome or even if it was held. Officials at Solidus and Merrick Bank did not return calls for comment, nor did a bankruptcy attorney for Solidus. Electronic filings for the case do not yet reflect court activity from that day.

PBT Processing primarily operates out of Tucson, Ariz., and provides card-processing services not to merchants directly, but to ISOs and agent banks. Merrick is one of the nation’s largest acquirers, having processed $19.6 billion in charge volume last year, and is the agent for most of the entities served by PBT Processing as well as the bank for PBT Payment Solutions. Pay By Touch got into the merchant-processing business through acquisitions, including InterCept Payment Solutions Inc. in March 2004 and the assets of CardSystems Solutions Inc., whose business had been severely damaged by a huge data breach (Digital Transactions News, Oct. 17, 2005).

The documents say Pay By Touch management, led by court-appointed restructuring officer Thomas Lumsden, tried to find a buyer for the two-part payments businesses, but no acceptable bids came in by a Feb. 19 deadline in advance of a planned Feb. 21 auction. The auction was cancelled. After that, Pay By Touch talked with numerous potential buyers, but it seems all were interested in only one or the other side of the business, not both, and at low prices. The company decided to pursue separate sales.

The businesses, however, had baggage that would-be buyers didn’t want to carry. For instance, PBT Processing was still subject to Federal Deposit Insurance Corp. restrictions stemming from the CardSystems breach, and its contracts for its data center and communication facilities needed renegotiation. Hence, Pay By Touch was unable to reach any contingency-free deal with a buyer, the documents say.

“At the same time, the PBT Processing business has continued to be damaged by the uncertainties occasioned by the bankruptcy process,” the March 21 filing says. The business needed an advance of $740,000 since the bankruptcy filing and is losing $250,000 per month. Consequently, Pay By Touch told Merrick on March 14 that it might shut down PBT Processing as soon as March 21. “This prompted a renewal of negotiations with Merrick regarding an acquisition of PBT Processing,” the filings say. Those negotiations lead to the current buy-out offer.

Initial closing on the sale is set for Friday, with matters involving certain contracts and unexpired leases to be resolved later. Pay By Touch is still trying to find a buyer for PBT Payment Solutions.