NEW YORK MasterCard Inc (MA.N) will buy U.K. payment services company DataCash Group Plc DATA.L for 333 million pounds ($520 million) in cash to expand its online commerce business and take market share abroad.
The world's second-largest credit and debit card payment processing network said it is paying 360 pence per share, a 54 percent premium to DataCash's Wednesday closing price. DataCash's shares rose to a 10-year high.
The deal will improve MasterCard's ability to process payments online, especially in Europe and emerging markets, the company said. Its new chief executive, Ajay Banga, is trying to boost the company's profits by developing its online and mobile payments processing business.
Merchants pay companies like DataCash to help them accept customer payments online and for fraud prevention. DataCash lets merchants accept online payments from customers via Visa Inc's (V.N) cards, MasterCards, eBay Inc's (EBAY.O) PayPal and other services.
MasterCard and Visa are trying to compete with PayPal, which is synonymous with online shopping in the minds of many consumers. But Banga said on Thursday he does not intend to change DataCash's relationship with PayPal.
Banga is also playing catchup with Visa, which last month bought U.S. payment processor CyberSource Corp for $2 billion.
CyberSource has 295,000 merchant clients, while DataCash worked with 1,400 merchants in 2009.
"(DataCash) is clearly a smaller player, but they appear to have a very strong presence in Europe," said Signal Hill analyst Mayank Tandon.
"Visa has a stronger presence (in e-commerce) and they bought the highest-quality asset in the space, but there's a long runway of growth here in the market," he added.
MasterCard shares fell about 1.3 percent to $210.16 in early afternoon trading Thursday. DataCash surged 51.8 percent to 356 pence on the London Stock Exchange.
TAKING SHARE ABROAD
MasterCard, which gets 55 percent of its revenue from outside the United States, is looking abroad to grow. In the United States, many people already use credit and debit cards instead of cash.
"There were no other pure play payment gateway providers (like CyberSource) in the U.S., so what else was MasterCard going to buy? Sounds like they got the European one," said Thomas McCrohan, analyst at Janney Capital Markets.
Without providing specifics, Banga said he was not abandoning hope of taking market share in U.S. e-commerce.
"I don't think the U.S. is in a stage of e-commerce development where all opportunities for people are saturated in any form whatsoever. (E-commerce) has grown more in markets outside the U.S., but it's still in its earlier stages of development," he said on a call with reporters and analysts.
MasterCard offers similar e-commerce services to merchants in the Asia-Pacific region and Australia. DataCash should help MasterCard expand those services more quickly, executives said during the call.
MasterCard expects the deal to reduce its fourth-quarter earnings by about 5 cents per share, break even in 2011, and add to earnings in 2012.
DataCash posted adjusted pretax profit of 16.6 million pounds ($25.93 million) on revenue of 36.9 million pounds in 2009.
DataCash's largest shareholder, Chairman Ashley Head, owns a 43.3 percent stake in the company, according to the company's website. He stands to gain about 144 million pounds from the MasterCard deal.
Deutsche Bank (DBKGn.DE) advised MasterCard and UBS UBSN.VX advised DataCash. The acquisition should close by the end of October, pending approvals by DataCash shareholders and the U.K. courts.
(Reporting by Maria Aspan in New York. Additional reporting by Shivani Singh in Bangalore. Editing by Jarshad Kakkrakandy, Kavita Chandran, John Wallace and Robert MacMillan)