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TSYS to Buy NetSpend in Debit Card Deal

Adrian Assaive | E+ | Getty Images

Payment processor Total System Services said it will buy prepaid debit card provider NetSpend Holdings for about $1.4 billion in cash to expand its presence in the prepaid card market and target new customers.

TSYS offered to pay $16 per share for NetSpend — a premium of 30 percent to the stock's Tuesday closing price.

NetSpend shares jumped to the offer price in trading after the bell. TSYS shares fell 2 percent in pre-market trading.

"We wanted to move beyond just prepaid processing for others and move into the space directly," Troy Woods, TSYS president, told Reuters.

The deal is expected to add to GAAP earnings per share for the first 12 months after closing, excluding fees and expenses, Columbus, Ga.-based TSYS said in a statement.

TSYS, which was once part of regional lender Synovus Financial, now expects revenue growth of 8 to 10 percent in 2013, up from its earlier estimate of 6 percent to 8 percent.

NetSpend Chief Executive Dan Henry will continue to manage the company, which will operate as a standalone business, TSYS said in a regulatory filing.

NetSpend's ability to sustain its earnings power and valuation has been questioned in recent times, given increased competition from larger entrants.

"Even though we are a large player in the (prepaid card) space, I believe that the space is very much at its beginning stages and the total available market provides tremendous growth opportunities," NetSpend CEO Dan Henry said in an interview with Reuters.

NetSpend and Green Dot pioneered, and for about 10 years, dominated the sale of prepaid cards that people without bank accounts can load up with value and use like a debit card.

However, the prepaid card market has become increasingly crowded in recent years as big banks such as JPMorgan Chase and US Bancorp started to offer their own, cheaper cards.

Houlihan Lokey was the financial adviser and King & Spalding the legal counsel to TSYS for the deal. Bank of America/Merrill Lynch was the financial adviser and Fried Frank the legal counsel to NetSpend.

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