Wednesday was a day for digesting the big news from TSYS that it is whipping out its credit card to make a $1.4 billion purchase of NetSpend, a deal that should be completed by this summer.
It was a double-edged response on the investor front, with shares of Columbus-based TSYS sliding $1.51 to $21.97, a decline of 6.4 percent. For Austin, Texas-based NetSpend, it was dramatically opposite. Its shares soared more than 28 percent, gaining $3.52 to close at $15.81.
TSYS, which will pay NetSpend shareholders $16 in cash for each common stock note that they hold, declined to comment on the trading activity.
Phil Tomlinson, the credit-card processors chairman and chief executive officer, on Tuesday hailed the pending acquisition as a transformational moment that will add product diversity and financial growth at TSYS in the coming years.
I think its just part of the maturing of TSYS, that we are comfortable with this and our board has been supportive. Weve done a lot of work getting here, he said.
NetSpend sells prepaid and reloadable debit cards to consumers who are considered underbanked, meaning they dont trust a bank or perhaps cant qualify for traditional bank cards. The cards also can be given as gifts.
The potential market is estimated at around 68 million consumers. Of those, NetSpend has about 2.4 million accounts under its belt, with 46 percent of those using direct deposit to reload them.
The tech companys debit cards are sold at check-cashing outlets and retailers such as Walgreens, CVS, Dollar General and Family Dollar.
It also has connections with BET (Black Entertainment Television) and PayPal, according to a research report issued by Raymond James analyst Wayne Johnson. The report also noted NetSpends corporate payroll cards are used by Cracker Barrel, SunTrust Bank and Kohls.
While TSYS has not broken the potential expense and revenue synergies that the union may create, Johnson sees it as a large opportunity for the card processor to upsell existing clients, as well as new ones.
NetSpend is the second-largest general purpose reloadable prepaid debit card company in the U.S., behind Monrovia, Calif.-based Green Dot.
The Motley Fool contributor Sean Williams on Wednesday called the TSYS-NetSpend deal a win-win for both parties, as TSYS gets access to the rapidly growing and still largely untapped domestic prepaid debit card market, and NetSpend gets the financial backing that it was lacking.
But he also noted the competitive landscape. American Express and Walmart have partnered on a Bluebird prepaid card. And food retailer Safeway is apparently interested in making its gift-card subsidiary, Blackhawk Network Holdings, a standalone entity, presumably to pursue its owns growth plans.