Deals and IPOs

TSYS to Buy NetSpend in Debit Card Deal

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Payment processor Total System Services said it will buy prepaid debit card providerNetSpend Holdings for about $1.4 billion in cash toexpand its presence in the prepaid card market and target newcustomers.

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

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

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

The deal is expected to add to GAAP earnings per share forthe 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 SynovusFinancial, now expects revenue growth of 8 to 10percent in 2013, up from its earlier estimate of 6 percent to 8 percent.

NetSpend Chief Executive Dan Henry will continue to managethe company, which will operate as a standalone business, TSYSsaid in a regulatory filing.

NetSpend's ability to sustain its earnings power andvaluation has been questioned in recent times, given increasedcompetition from larger entrants.

"Even though we are a large player in the (prepaidcard) space, I believe that the space is very much at itsbeginning stages and the total available market providestremendous growth opportunities," NetSpend CEO Dan Henry said inan interview with Reuters.

NetSpend and Green Dot pioneered, and forabout 10 years, dominated the sale of prepaid cards that peoplewithout bank accounts can load up with value and use like adebit card.

However, the prepaid card market has become increasinglycrowded 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 & Spaldingthe legal counsel to TSYS for the deal. Bank of America/Merrill Lynch wasthe financial adviser and Fried Frank the legal counsel toNetSpend.