It’s Official: Synovus Will Spin off Processor TSYS in $600 Million Deal

Capping months of planning, bank-holding company Synovus Financial Corp. confirmed Thursday afternoon that it would spin off its entire 80.8% interest in payment card processor Total System Services Inc. (TSYS) to its shareholders. In doing so, Synovus brings up what is likely to be the rear of an extremely active year for changes in processors' ownership. “This is a watershed event for both TSYS and Synovus that we believe will benefit the shareholders of both companies,” Philip W. Tomlinson, chairman and chief executive of TSYS, said in a statement. “This transaction allows for broader diversification of our shareholder base; more liquidity in our shares; additional investment in strategic growth opportunities and potential acquisitions; and the opportunity for shareholders to value TSYS as a stand-alone, pure play in the payments-processing market.” At Synovus's third-quarter conference call Thursday afternoon, Tomlinson added: “We think that will provide an awful lot more strategic flexibility in all areas.” The spin-off involving the two publicly traded, Columbus, Ga.-based companies has some similarities to the pending “sponsored spin” by Milwaukee-based bank company Marshall & Ilsley Corp. of its processing subsidiary Metavante Corp. to M&I shareholders and private-equity firm Warburg Pincus LLC, which will have a 25% stake in Metavante. In both cases, the processors' growth prospects were constrained because of the need of their bank parents to meet regulatory capital requirements. Brett Horn, an equity analyst with Chicago-based Morningstar Inc. who follows payment processors, notes that any debt TSYS took on to fund an acquisition would be counted against Synovus's capital. “Now that constraint disappears,” he says. “They [TSYS] have flexibility on the balance sheet if they want to go after a major acquisition.” The planned spin, approved by directors of both companies, will include a TSYS-paid cash dividend to its shareholders of $600 million, or $3.04 per share. TSYS will fund the dividend with cash on hand and by tapping its revolving credit facility. With its nearly 81% share in the processor, Synovus will get $485 million of that dividend. Synovus initially will inject the dividend as capital into its lead bank, Columbus Bank and Trust, Synovus chairman and chief executive Richard E. Anthony said at the conference call. Synovus shareholders of record as of Dec. 18 will get 0.49 shares of TSYS stock for every Synovus share they own. Synovus hopes to complete the spin-off Dec. 31. Columbus Bank and Trust, an early credit card issuer, founded TSYS in 1959 as a small division. TSYS began processing card transactions for other banks in 1974, and in 1983 became a publicly traded company. Today TSYS, like archrival First Data Corp., is profitable but finding its best growth prospects overseas as the U.S. market grapples with maturity and a trend by the biggest banks to take their credit card issuing processing functions in-house (Digital Transactions News, Oct. 23). In a conference call Friday morning, Tomlinson told analysts TSYS would remain a “conservative” company that won't go on an immediate acquisition binge. But he outlined areas where TSYS sees growth opportunities. They include international markets, generating more business from existing customers, and going after financial institutions that do their own card processing. “There's an awful lot of people who still process in-house,” he said. Despite its perceived maturity, the U.S. still presents many growth opportunities, according to Tomlinson. “We would like to do more in the merchant businesses,” including data analytics, he said. “We think there is a way to better mine all that information. We certainly think we could be stronger in the retail business.” TSYS also has its eye on debit card processing, no surprise given that debit card usage is growing more than twice as fast as credit card transaction volume. “We have not been very successful in debit, we have not been able to acquire a debit switch,” Tomlinson said, adding that, “we believe we can expand into health care.” Tomlinson referred to but never mentioned by name two big TSYS clients that recently took their credit card business in-house?Bank of America Corp. and JPMorgan Chase & Co.?but said he always regards former customers as prospects. M&I announced Thursday that its shareholders had approved the Metavante spin and expects to close the deal Nov. 1. Metavante shares will begin trading Nov. 2 on the New York Stock Exchange under the ticker symbol “MV.” Also Thursday, Jacksonville, Fla.-based Fidelity National Information Services Inc., which recently acquired processor eFunds Corp., said it would spin off its mortgage-processing division as a separate, publicly-traded company. The spin-off will leave FIS as bank processor in a field that includes Metavante, Fiserv Inc. (which is buying electronic bill-pay specialist CheckFree Corp.), and Jack Henry & Associates Inc., Morningstar's Horn says. Last month, private-equity firm Kohlberg Kravis Roberts & Co., completed its $29-billion buyout of leading payment processor First Data (Digital Transactions News, Sept. 25). Another processor, Dallas-based Alliance Data Systems Corp., reported Oct. 17 that its planned buyout by private-equity company The Blackstone Group was on track for a fourth-quarter close. Also going private is Bloomington, Minn.-based Ceridian Corp., owner of fast-growing processor Comdata Corp. Ceridian announced Oct. 10 that it had obtained regulatory approvals and expects to close this quarter on the buyout by Thomas H. Lee Partners L.P. and insurance-services firm Fidelity National Financial Inc.