First Data Plans To Cut 12 Data Centers Down to Three by Mid ’09

As part of its efforts to rationalize its operations, First Data Corp. plans to consolidate its 12 U.S. data centers into three over a two-year period starting in the second quarter, according to a quarterly report the processing giant filed this week with the Securities and Exchange Commission. The total cost of the initiative will be $225 million, the company estimates, including $80 million in direct costs and $145 million in capital expenditures. Of that amount, the company will incur $45 million this year, including $21 million in direct expense and $24 million in capital expenditure. Meanwhile, another major consolidation effort having to do with U.S. processing applications, or so-called platforms, is still “under development,” First Data says in the first-quarter report. The company operates some 13 merchant platforms in the U.S., some of them functioning as both front-end authorization and back-end settlement-service units. The consolidation drive results from the Denver-based company's decision to wring costs out of a processing infrastructure that has been largely built via acquisition over a number of years. The effort received new urgency with the $29 billion April bid by Kohlberg Kravis Roberts & Co. to acquire First Data and take it private (Digital Transactions News, April 2). If the transaction is consummated, some observers argue KKR is likely to accelerate the pace at which the consolidation plan is executed. Under the so-called go-shop terms of the bid, First Data has until May 22 to consider other proposals. The company revealed in its filing that it must pay a $700 million fee to KKR if it backs out, though if the termination is “in connection with certain takeover proposals,” it will pay only $250 million. Likewise, KKR will pay First Data $700 million if the deal falls through owing to a breach of obligations by KKR or because of the investment firm's inability to meet the purchase price. The deal is expected to close by the end of the third quarter. Elsewhere in the filing, First Data reported its acquiring business, known as Commercial Services, logged $1.02 billion in revenue in the first quarter, up from $934.4 million in the year-ago period, and now accounts for nearly half of the company's total revenue (until September, First Data's results included the operations of Western Union, which the company spun off last year). Commercial Services handled 6.52 billion merchant transactions, up 13% over the first quarter of 2006.