BofA, First Data create payments company

By Elinor Comlay and Juan Lagorio

NEW YORK (Reuters) - Bank of America Corp (BAC.N), the largest U.S. bank, and First Data Corp have created a joint venture to offer electronic payment services to merchants.

The venture will combine Bank of America's brand name -- and its 240,000 merchant relationships -- with First Data's payment services technology, Thomas Bell, chief executive of the new company, said on Monday in an interview.

First Data, owned by private equity company Kohlberg Kravis Roberts & Co KKR.UL, began discussions about a potential venture with Bank of America a year ago, Bell said.

Atlanta-based First Data was attracted to the venture because of the strength of Bank of America's brand, its distribution network and client relationships, he said.

"It was pretty obvious that the combination ... was frankly going to be very powerful," added Bell, a former management consultant and chief strategy officer of First Data.

UBS analyst Jason Kupferberg said in a note to clients that the deal seemed similar to Chase Paymentech -- a venture owned by First Data and JPMorgan Chase & Co (JPM.N) that the parties dissolved last year.

First Data is bringing about 140,000 merchant relationships to the new company, Bank of America Merchant Services.

"This was basically a carve-out of a portion of our merchants to equal what the bank was putting in," Bell said.

Bank of America will own 46.5 percent of the new company, while First Data will hold a 48.5 percent stake.

The remaining stake will belong to Rockmount Investments LLC, an investment vehicle controlled by a third-party investor, the companies said. "For various tax and legal reasons we felt it was in our best interests to have a third-party investor," Bell said, declining to name that investor.

"While the alignment of two large processors could create competitive challenges for smaller acquirers, we see a near-term opportunity for players like Global Payments Inc (GPN.N) -- and others -- to possibly pick up share as First Data and Bank of America customers convert to the new entity," Kupferberg said.

However, he added the link-up could hurt Total System Services (TSS.N) as the company provides merchant processing services for some of Bank of America's acquiring business.

"We have a very good client in Bank of America. We do provide a number of different services for them across our whole enterprise, so we value that relationship with them and we look forward to continue to work with them in the future," said Total System's spokesman Cyle Mims.

The joint venture will be based in Atlanta and have about 1,000 employees during a transition period of 18 months to three years, Bell said. He declined to say what will happen to the venture's combined facilities and jobs after that period.

Bank of America said it would discuss the financial impact of the deal when it releases second-quarter earnings on July 17.