Columbia West Capital News
05.10.07 Shares of eFunds soar amid merger talks, The Arizona Republic

Jane Larson
The Arizona Republic

Shares of EFD, eFunds Corp. jumped to a record high Wednesday after the Scottsdale-based payment processor said it is considering a possible merger or other "strategic alternatives."

The company's stock closed at $31.91 a share, up $3.42, or 12 percent, from the day before. It tacked on another 13 cents, or .39 percent, in after-hours trading.

EFD chairman Paul Walsh said in a conference call that the company has been approached by strategic partners and financial firms about possible business combinations. Its three options are remaining an independent company, partnering with a private equity firm or other capital source, and merging with a strategic partner, he said.

"We cannot ignore the fact that our industry is changing and the continued consolidation in the financial services market," Walsh said.

EFD provides electronic payment processing, risk management and outsourcing, mainly to banks and other financial institutions.

One of its largest competitors, First Data Corp. of Greenwood Village, Colo., last month accepted a $27 billion buyout offer from equity firm Kohlberg Kravis Roberts & Co.

On the market side, Walsh noted the takeover battle for Dutch bank ABN AMRO Holding N.V.

Others agreed that the sector is hot.

Billion-dollar buyout?

"You can look at it as another billion-dollar buyout," said Kevin Fechtmeyer, managing director of Columbia West Capital LLC, a Scottsdale investment bank not involved with EFD. "There is a huge amount of money out there chasing deals."

Financial bidders for companies have recently had the edge over strategic partners, Fechtmeyer said, and that could be good news for the Valley if EFD is acquired. The company operations and managers would be more likely to remain in Arizona than if a rival buys it and cuts costs, Fechtmeyer said.

EFD said its board of directors has formed a review committee to explore all of its options, including potential merger opportunities.

It also said it hired Goldman Sachs & Co. and BlackRock Inc. as independent financial advisers to assist.

EFD said no decision has been made, nor is there any assurance, that a formal proposal will be presented to the board or that the board will approve one. The company said it would not provide updates or comments unless it enters a definitive agreement.

Earnings announced

EFD also reported its net income for the first quarter ended March 31 slipped 1 percent to $10.5 million, or 22 cents a share, from $10.7 million, or 23 cents a share, in the same period a year ago.

Revenue dropped 4 percent, to $134 million from $139.7 million in the same period a year ago, due to contracts that ended in mid-2006.

The company said it expects revenue and earnings for the full year to fall at the lower end of ranges it previously announced.

Revenue is expected to range between $591 million and $631 million, and earnings are projected between $1.30 and $1.42 a share.

EFD moved its headquarters to Scottsdale in 2000 after Deluxe Corp. spun off the firm in an initial public offering. It has nearly 500 employees in the Valley and generated $552 million in revenue last year.

It said in March that it is changing its name to EFD from eFunds Corp. but would go by EFD, eFunds during the transition.