UPDATE: TSYS Agrees to Buy NetSpend for About $1.4 Billion in Cash

--Payment processor TSYS agrees to buy NetSpend Holdings for about $1.4 billion in cash

--TSYS will pay $16 a share in cash for NetSpend, a prepaid-debit-card provider

--TSYS says it will look to expand NetSpend globally

(Adds details about prepaid-card market and details about Capital One's previous deal to acquire NetSpend.)

 
   By Ryan Dezember and Andrew R. Johnson 
 

Payment processor Total System Services Inc. (TSS) said Tuesday it has agreed to buy prepaid-debit-card provider NetSpend Holdings Inc. (NTSP) for about $1.4 billion in cash.

The purchase price equates to $16 per share, the companies said in a statement.

The acquisition by TSYS is a bet that digital payments will continue to replace cash transactions, particularly among the millions of "unbanked" Americans who don't have checking accounts. NetSpend estimates there are more than 60 million such consumers in the U.S.

"You don't have to get a very big piece of the available market to have significant growth from where we are currently," NetSpend Chief Executive Dan Henry said in an interview. NetSpend, based in Austin, Texas, sells its reloadable prepaid debit cards at more than 62,000 locations, including convenience stores, check cashers and tax preparers.

TSYS, which has a stock market value of about $4.3 billion and is based in Columbus, Ga., has been expanding through acquisitions, broadening out from its traditional role as third-party payment processor.

In December, TSYS paid an undisclosed sum for ProPay, a Utah company that provides mobile-payment processing software and equipment, such as card readers that attach to smart phones.

Prepaid cards have become one of the fastest growing financial-services products, attracting a slew of mainstream lenders that have rolled out their own cards to expand their customer base and cope with new regulations that have crimped credit- and debit-card revenue.

Lenders including J.P. Morgan Chase & Co. (JPM), American Express Co. (AXP), U.S. Bancorp (USB) and others have begun offering the cards over the last year and a half, putting pressure on NetSpend and Green Dot Corp. (GDOT), a company that generates more than 60% of its revenue through a partnership with Wal-Mart Stores Inc. (WMT).

Both NetSpend and Green Dot went public in 2010, and analysts have cited them as potential acquisition targets in the past.

Green Dot's shares were up 12.7% at $16.48 in after-hours trading on Tuesday, though had been up as much as 16%.

Capital One Financial Corp. (COF) in 2007 announced a deal to acquire NetSpend for $700 million but the companies later scrapped those plans.

TSYS, which performs processing for financial institutions and merchants, said the deal would help it forge more direct relationships with consumers and seize a bigger share of the growing prepaid-card market.

Spending on open-loop prepaid cards, or those that carry the logo of a payment network such as Visa Inc. (V) or MasterCard Inc. (MA) and can be used like regular debit card, is expected to grow to $411 billion by 2016 from $201 billion in 2012, Philip Tomlinson, CEO of TSYS, said during a conference call to discuss the deal on Tuesday, citing estimates from First Annapolis Consulting.

TSYS will look for opportunities to expand NetSpend's presence globally, Mr. Tomlinson said, noting the company is currently limited to the U.S.

NetSpend recently started a partnership with Intuit Inc. (INTU) that allows taxpayers to obtain NetSpend debit cards through the software company's TurboTax products, and then have their refunds deposited to them. NetSpend also said it will soon roll out a similar feature for Intuit's QuickBooks software for small-business owners, making NetSpend cardholders able to receive payroll deposits.

NetSpend also offers corporate payroll services in which workers can have salaries deposited directly onto the cards. It currently has more than 1 million direct-deposit accounts.

At $16, TSYS is offering a 30% premium to NetSpend's closing price Tuesday. Shares fell 3.2%, or 40 cents, to $12.29 in New York Stock Exchange composite trading at 4 p.m. EST, though shares were up 30% at $16 in after-hours trading. The shares briefly rose above $16 following its initial public offering in late 2010 but have traded substantially below that mark ever since.

Shares of TSYS were down 1.8% at $23.05 in after-hours trading on Tuesday.

NetSpend last week said its 2012 revenue rose 15% from a year earlier, to $351 million. Profits declined year-over-year as NetSpend paid $24 million to settle a long-running legal dispute.

TSYS said it hoped to have the transaction closed by midyear and that the acquisition is expected to boost its earnings in the next year.

Write to Ryan Dezember at [e-mail] and Andrew R. Johnson at [e-mail]

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