Discover to Buy Citigroup's Diners Club
Credit card network Discover Financial Services said Monday it agreed to buy Citigroup's Diners Club International for $165 million, expanding its global presence.
Diners Club generates more than $30 billion of annual card volume outside North America, where it is accepted at more than 8 million locations in 185 countries, Discover said.
"We are now able to compete on a global stage," Discover Chief Executive David Nelms said on a conference call.
"Completing (our) strategy to fill out our U.S. and North American acceptance is job one. It's not that global acceptance wasn't particularly important, it just wasn't achievable until now," he added. "This changes all that."
Discover expects to integrate the networks in two to three years. It said this would let its own cardholders use their cards at merchants that accept Diners Club, and Diners Club cardholders use their cards on its own North American network.
The transaction follows Riverwoods, Illinois-based Discover's sale last month of its money-losing Goldfish credit card unit in Britain to Barclays for $70 million.
Discover said it expects Diners Club to initially add $10 million to $15 million of pre-tax profit.
It is not adding credit risk because it will not issue cards or extend consumer credit in international markets.
The transaction will allow Citigroup to streamline operations and focus on stronger businesses, said Ed Eger, head of international cards at the largest U.S. bank.
New York-based Citigroup has been trying to cut costs and boost efficiency after problems tied to subprime mortgages and other debt led to a $9.83 billion fourth-quarter loss.
Many analysts expect a multibillion-dollar first-quarter loss.
The Diners Club transaction is expected to close within 90 days, pending regulatory approval.
In morning trading on the New York Stock Exchange, Discover shares rose 96 cents, or 5.6 percent, to $18.10, and Citigroup shares rose 87 cents, or 3.6 percent, to $24.95.
Discover shares have fallen by more than one-third since Morgan Stanley spun off the company at $28.50 per share at the end of June 2007.