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Fitch affirms First Data's short-term rating at 'F1'

27 February 2004  |  1769 views  |  0

Fitch Ratings has affirmed First Data Corp.'s (First Data) 'F1' short-term rating following the company's completed acquisition of Concord EFS (Concord). The rating applies to First Data's $1.5 billion commercial paper (CP) program and $300 million extendable commercial notes (ECN) program.

First Data completed its acquisition of Concord today in an all stock transaction valued at approximately $7 billion, representing a fixed exchange ratio of 0.365 First Data common shares for each Concord common share. This exchange ratio represents a reduction from the original exchange ratio of 0.40 shares, as First Data was required to make concessions as part of a Department of Justice (DOJ) settlement. The DOJ also required First Data to divest its 64 percent ownership of the NYCE Corporation and to hold NYCE as a separate unit pending the divestiture.

Fitch estimates that First Data will acquire approximately $1 billion in cash as a result of this transaction. The combined company is expected to generate annual revenue of approximately $10 billion in 2004 and the company expects to realize 70 percent of the synergy value in 2005 and the full synergy value of $205 million in 2006. Fitch believes that the addition of Concord's assets to First Data's product profile will enhance the company's position in the marketplace, particularly in the merchant services segment, increasing its market share for debit-card and ATM transaction fees. In particular, the combination would boost First Data's share of Visa and MasterCard credit and debit card processing for merchants.

The rating continues to reflect First Data's leading position in third-party processing of credit cards, merchant transactions and payment services, allowing the company to maintain strong cash flow and a conservative financial profile. First Data's strategy is to generate recurring revenue by developing long-term contractual relationships with clients who have decided to outsource various transaction and information processing services.

In Western Union, FDC has a strong established brand and an extensive domestic and growing international agent network. First Data's size and market position make it the top payment processing firm and enables the company to benefit from economies of scale.

Also considered are increased regulation and state investigations into First Data's compliance with certain rules and regulations established by the Federal Bank Secrecy Act and USA Patriot Act, strong competition for the payment services segment (Western Union) from stronger and better capitalized international banks as well as smaller, geographically concentrated niche players, the potential customer consolidation, and competitive pricing pressures in the credit card and transaction processing industries. First Data will need to retain its larger and higher volume customers in order to maintain its own current economies of scale.

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