Apr 22, 2010

Visa to acquire CyberSource for $2 billion

NEW YORK--Visa Inc will buy CyberSource Corp, a company that helps retailers accept online payments, to boost its business in fast-growing areas such as emerging markets and online commerce.

Visa, the world's largest credit and debit card processor, would pay $26 a share, or about $2 billion, for CyberSource. That amounts to a premium of nearly 34 percent over CyberSource's closing share price on Tuesday.

Visa's shares edged 1.1 percent lower to $93.03, while CyberSource's surged 31.8 percent to $25.62. CyberSource was the second-most active stock on Nasdaq on Wednesday.

Visa said the deal would increase its ability to process payments online, where analysts estimate that it already controls about 45 percent of the market. CyberSource's technology also makes it easier for retailers to accept new types of payments, including those made with mobile phones.

"It ensures that they're going to continue to be very competitive in important growth parts of the market, whether it's online payments, mobile payments or international payments," said Richard Shane, an analyst atJefferies & Co.


CyberSource, which has an 11-year partnership with Visa, helps process about 25 percent of all online commerce transactions in the United States. Its 295,000 merchant clients include British Airways Plc, Home Depot Inc Facebook and Google Inc.

Visa is increasingly dependent on emerging technologies and markets for growth, now that most U.S. consumers already use traditional credit or debit cards.

Though Visa still relies on the United States for 59 percent of its revenue, international sources should account for more than half of the total by 2015, executives told investors last month.

Calling for growth

Mobile phone payments could be especially profitable for Visa in emerging markets, where the infrastructure for credit card payments is less developed, but cell phones are increasingly widespread.

"CyberSource's key market opportunities are international, specifically Asia and Latin America," Visa Chairman and Chief Executive Joseph Saunders said on a conference call.

"This will be a significant focus, effective immediately."

Visa and rival MasterCard Inc are increasingly fighting for market share in online payments as more consumers shift their shopping habits online, often using competitors such as eBay Inc's PayPal unit.

Last week Ajay Banga, who will become MasterCard's next CEO in July, also named emerging markets and innovation in e-commerce as priorities for the company. MasterCard said it has created a new global research and development arm to work on such innovation.

"Everyone's investing in e-commerce, investing in emerging markets, investing in mobile, so I wouldn't (call Visa's deal) debilitating for the rest of the group. But it definitely leapfrogs Visa in terms of where they were to where they are now," said Scott Valentin of FBR Capital Markets.

"This would solidify Visa's presence in that (e-commerce) market and prevent any potential loss of market share" to MasterCard or American Express Co, Valentin said.

The deal is Visa's first acquisition since going public in March 2008. It is expected to close by September 30, and would reduce Visa's earnings for that quarter by about 4 to 5 cents a share.

Visa is paying 25 times CyberSource's estimated earnings per share in 2011, according to Valentin, who called the price "a fair multiple" given CyberSource's market share.

Plenty of cash

CyberSource processes some transactions directly, but the majority of its business is providing security and fraud-management services to merchants. Visa said during the call that it would shift CyberSource away from the processing business, and refer the affected merchants to financial institutions that work with Visa.

JPMorgan Chase & Co advised Visa on the deal, while Goldman Sachs Group Inc advised CyberSource. Saunders said during the call that Visa's "excess cash position remains strong even with this transaction." The San Francisco company had $4.1 billion of cash and cash equivalents as of December 31.

CyberSource President and CEO Michael Walsh is expected to remain with Visa and continue to oversee his company's operations after the deal closes. Chairman William S. McKiernan, who founded the company in 1994, will become an executive advisor to Visa during CyberSource's integration.





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