announced that its shareholders have approved the company’s $26
billion acquisition by an affiliate of private equity giant
Kohlberg Kravis Roberts (KKR). Over 98 percent of shareholders
voted in favour of the proposal.
Concerns about the turmoil occurring in the global credit market
due to the US subprime mortgage crisis threatened to take the deal
off track, but Ric Duques, First Data chairman and CEO, said the
acquisition will close in the third quarter of this year, even if
only short-term finance is secured.
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Since June this year, 46 leveraged finance deals have been
abandoned, representing more than $60 billion in funding planned
for mergers and acquisitions. Private equity firms such as KKR use
leveraged finance to fund corporate buyouts, and the credit rout
has already forced KKR to delay its acquisition of Alliance Boots
in the UK.
Should KKR’s acquisition of First Data go through as planned,
there will still be the question of how First Data will fare under
new ownership and operating structures. Adil Moussa, an analyst at
US research consultancy Aite Group, commented that while First
Data’s international business is growing, its US business is
struggling. “Since both components rely on the same processing
capabilities, First Data will be forced to adopt two different
strategies on two different fronts, which almost goes against the
streamlining efforts that KKR would want to impose to make them
more efficient,” Moussa said.
TSYS could go it alone
TSYS, First Data’s main rival in the processing space, could be
spun off from parent company Synovus, which owns 80.8 percent of
TSYS’s outstanding stock. Synovus has asked its board of directors
to consider whether to distribute its ownership interest in TSYS to
Synovus’s shareholders in a spin-off transaction. Synovus will also
ask its board to appoint a special committee of independent Synovus
directors to make a recommendation regarding the
spin-off.
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