Largest deal ever by TSYS: Columbus company spending $1.4 billion on Texas-based prepaid card company NetSpend

In a cash deal valued at $1.4 billion — and its largest acquisition ever — credit-card processor TSYS on Tuesday said it is purchasing Texas-based NetSpend, a company that specializes in offering prepaid debit cards to “underbanked consumers.”

The transaction, which will need regulatory approval, is expected to close within 90 days. It gives NetSpend shareholders $16 in cash for each share of common stock they own. On Tuesday, NetSpend shares closed down 40 cents at $12.29 per share, but still near its 52-week high of $12.95.

TSYS Chairman and Chief Executive Officer Phil Tomlinson, in Austin, Texas, Tuesday, where NetSpend is headquartered, called the deal “transformational” for his company. TSYS already processes prepaid cards for clients, including some of those currently doing business with NetSpend, he noted.

“It’s going to be one of those watershed events long term,” he said. “We expect this business to grow at a 20 percent-plus rate over the next four years. We think it’s a high-growth market.”

The purchase gives Columbus-based TSYS a targeted way to access about 68 million underbanked consumers who need alternatives to storing and spending their money. NetSpend currently has more than 2.4 million accounts, nearly half of those using direct deposit.

It offers prepaid debit cards through a network of 62,000 locations, including retailers, check cashing businesses, convenience stores, supermarkets, insurance outlets and tax preparers. Payroll cards are also offered by the firm.

NetSpend clients and distribution outlets currently include retail pharmacies Walgreens and CVS, as well as Dollar General, Family Dollar, Safeway, 7-Eleven, Speedway, TurboTax and Intuit.

“It’s really just a neat service that allows people to keep their money in a secure place,” Tomlinson said. “It allows them to deposit money into these cards on a regular basis. Or it can be just like a gift card, where you go out to CVS and buy a gift card and give to your wife for Valentine’s Day or whatever.”

The TSYS CEO said NetSpend, which was founded 14 years ago, will maintain its operations in Austin, with its 400 employees expected to remain with the company. NetSpend CEO Dan Henry will join the TSYS executive team.

“I would say the vast majority of their management team is staying on, and we’re hopeful that every single employee stays,” said Tomlinson. “They’re doing a great job, and they’ve got some wonderful marketing people here.”

Henry, in a statement, said his firm’s acquisition by TSYS opens both of the entities up to “endless” opportunities. “I can’t think of a better, more strongly positioned industry leader who can help us take NetSpend to the next level,” he said.

NetSpend Holdings Inc. reported net income of nearly $18.9 million in 2012. That was on operating revenue of $351.3 million. Operating income — which doesn’t include taxes and interest expenses — came in at $33.9 million.

TSYS, meanwhile, posted a profit of $244.2 million in 2012 on total revenue of $1.87 billion. Its own stock closed up 21 cents per share at $23.48 in trading Tuesday on the New York Stock Exchange.

Tomlinson said he hopes investors and research analysts view the move as a good one.

“We’ve had a lot of analysts ask us over the years if would be willing to spend money on the right thing, and I hope this will answer that question,” he said. “I would hope the market will be very positive about it.”

After the deal closes, the CEO said NetSpend’s business will become a fourth category in TSYS’ financial reporating. It already has International, North America and Merchant segments, with the new one being called “GPR,” or general purpose reloadable cards.

The $1.4 billion acquisition tops its previous largest, a $350 million purchase by TSYS of First National Merchant Solutions from First National Bank of Omaha. That transaction took place in two pieces, one in 2010 and the other in 2011.

Tomlinson said he thinks Tuesday’s buyout comes at a great price for all involved and that it should lead to financial growth for TSYS and continued stabilization for its Columbus workforce of more than 4,500 (it employs about 8,700 worldwide).

It is likely that NetSpend, which does business only in the U.S. now, will expand to international markets, he said.

“I think it’s a great price, and we feel good about it,” he said. “We feel good about the people and the products and the way they do business. They’re very similar to us. They have a high level of integrity, and they’re the kind of folks you can take home to mama.”