Under the terms of the sale, FIS will issue to Metavante stockholders 1.35 shares of its stock for every one share of Metavante stock they hold. The company declared the deal had a pro-forma value of $10 billion, but media analysts set the stock value of $2.94 billion.
FIS is a supplier of core processing and payment management systems, along with card processing and outsourced services for more than 14,000 financial institutions worldwide. The company in particular provides card processing services for thousands of credit unions. Metavante provides payment processing and other banking services to 95 of the top 100 banks, the firm said, but does not have as strong a presence in the credit union market.
The sale still has to garner the approvals of regulatory authorities and shareholders.
"The combined scale, complementary product capabilities and market breadth of these two great companies will drive significant competitive advantages in the increasingly dynamic marketplace," stated William P. Foley II, chairman of FIS. "This transaction will further strengthen FIS' competitive position as a leading global provider of technology solutions and enable us to generate increased value for shareholders and customers," added Lee A. Kennedy, FIS president/CEO.
"By bringing these two companies together, we expect to accelerate revenue growth, drive higher profitability, and create greater financial flexibility for growth investments and acquisitions," said Frank R. Martire, Metavante's current chairman/CEO. "In addition, the size, scope and geographic reach of the combined company will offer even greater opportunities to our employees, worldwide."
Analysts called the purchase the first shot in an ongoing war for the strongest position in the core processing market.
"Increasingly stringent regulations and demands for greater information and transparency are driving financial institutions toward even greater vendor consolidation," explained Christine Barry, a research director for the Aite Group, a noted banking research and consulting firm.
"In such an environment, most institutions are now viewing bigger as better and this merger is placing both institutions in a better position to compete against Fiserv-the 800-pound gorilla prior to this announcement-especially in the smaller bank market where much of the technology spending activity is currently taking place," she said.
Fiserv had not returned calls for comment as of press time.
Barry and other analysts said that vendors view dominating the core processing market, particularly for credit unions and smaller banks, as the big prize because once the core processing relationship is nailed down the company can more easily sell a host of other products and services.
For example, in a presentation of the benefits of the sale, Fiserv and Metavante noted that the new firm will be able to offer complete services in core processing, image and item processing, bill payment and online banking, prepaid cards, debit cards and EFT networking, credit card processing and loyalty programs and risk management solutions.
The firm said their major competitors may offer some of these services but are not leaders in all of them, and many do not offer any of them at all.
Barry said any firm that is able to dominate the core processing market may be able to ride the current trend towards increased vendor consolidation and transparency. She also noted that a recent Aite survey of credit unions' perceptions of their own technology needs found that 17% of the credit unions surveyed said replacing or upgrading their core processing was a priority this year, signaling the market's readiness for new products or vendors.
Of particular interest is what the purchase might mean in the ATM and EFT markets for credit unions. FIS is already the primary processor for CO-OP Financial Services' CO-OP Network, and thus has an indirect relationship with all those credit unions, and Metavante owns the NYCE network. Owning NYCE will provide FIS a counterweight to the Star network, owned by competitor First Data.
Further, Metavante's strength in online banking and bill pay could offer FIS an opportunity to competitively offer those services to credit unions it already has an ATM/EFT relationship with.
Jim Hanisch, executive vice president of CO-OP, said the purchase would likely have more of an immediate impact for banks than for credit unions, but that credit unions should pay attention for future developments.
"It's important to remember that this is only the middle of the book," Hanisch observed. "There is still the second half of the book to come."
CO-OP CEO Stan Hollen said he saw the opportunities for FIS in consolidating its services around core processing but added that the approach might not work well in the credit union market.
"For whatever reason, credit unions have generally liked having more than one vendor and have disliked having everything from their core processor," Hollen said. "It makes them feel captured or trapped, so I am not sure that credit unions will necessarily like that aspect of the sale."
But he acknowledged that the purchase may allow FIS to offer credit unions that choose its core processing platform some very beneficial pricing on other services that it provides.
He also pointed out that when working with credit unions in the past, FIS has opted to use intermediaries. For example, FIS has interacted with credit unions in the ATM/EFT market though its relationship with CO-OP Financial Services and Card Services for Credit Unions for credit cards. Hollen also suggested that CO-OP might be interested in partnering with the new FIS to offer bill pay services to its member credit unions, noting that the CUSO has been studying the possibility of bill pay for some time.
"This acquisition further enhances Fidelity's position in the payment-processing space and is a welcome sign of business partner financial soundness and stability in these very difficult economic times where many entities are reporting multi-billion dollar losses," said CSCU President Robert Hackney. "CSCU and our relationship with Fidelity provides a safe-harbor for CU's to have peace of mind their business partners are strong enough to weather the storm."