NEW YORK (Reuters) - Credit card network Discover Financial Services (DFS.N) said on Monday it agreed to buy Citigroup Inc’s (C.N) Diners Club International for $165 million, expanding its global presence.
Diners Club generates more than $30 billion of annual card volume outside North America, where it is accepted at more than 8 million locations in 185 countries, Discover said.
The purchase could help Discover add market share, including from business travelers. Its main rivals among card networks include Visa Inc (V.N), MasterCard Inc (MA.N) and American Express Co (AXP.N).
“We are now able to compete on a global stage,” Discover Chief Executive David Nelms said on a conference call.
“Completing (our) strategy to fill out our U.S. and North American acceptance is job one. It’s not that global acceptance wasn’t particularly important, it just wasn’t achievable until now,” he added. “This changes all that.”
The company expects to integrate the networks in two to three years. It said this would let its own cardholders use their cards at merchants that accept Diners Club, and Diners Club cardholders use their cards on its own North American network.
“Discover is not accepted at most international merchants and is therefore less likely to be an upscale cardmember’s primary card,” Credit Suisse analyst Moshe Orenbuch wrote. “The transaction will give Discover access to the fast-growing geographies outside North America.”
The transaction follows Riverwoods, Illinois-based Discover’s sale last month of its money-losing Goldfish credit card unit in Britain to Barclays Plc (BARC.L) for $70 million.
Discover is not adding credit risk because it will not issue cards or extend consumer credit in international markets.
It expects the Diners Club transaction to add $10 million to $15 million of annual pre-tax profit, and close within 90 days, pending regulatory approval.
The transaction will allow Citigroup to streamline operations and focus on stronger businesses, said Ed Eger, head of international cards at the largest U.S. bank.
New York-based Citigroup has been trying to cut costs and boost efficiency after problems tied to subprime mortgages and other debt led to a $9.83 billion fourth-quarter loss. Many analysts expect a multibillion-dollar first-quarter loss.
In afternoon trading on the New York Stock Exchange, Discover shares rose $1.37, or 8 percent, to $18.51, while Citigroup rose 89 cents, or 3.7 percent, to $24.97.
Morgan Stanley (MS.N) spun off Discover at $28.50 per share at the end of June 2007.
Diners Club said its credit card was the world’s first, created in 1950 after co-founder Frank McNamara once asked his wife to pay a dinner bill after he left his wallet in another of his suits.
The company focused on higher-income cardholders who traveled often but lost much of its cachet as American Express, MasterCard and Visa cards gained wider use. Citicorp, now known as Citigroup, bought Diners Club in 1981.
Editing by Dave Zimmerman and Tim Dobbyn