Payment technology company Global Payments Inc. agreed to buy Heartland Payment Systems Inc. for about $3.8 billion in cash and stock, a deal that would expand its reach among midsize and small merchants.
The deal price of $100 a share provides about a 29% premium over Heartland's share price last week, ahead of media reports about a possible deal between the companies.
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Shares of Heartland, which mostly processes payments on behalf of small merchants, climbed 12% after hours to $95.10, while those of Global Payments declined 2.3% to $69.76.
Atlanta-based Global Payments isn't a household name but touches the financial data of millions of consumers each day in its role as a card-processing middleman between merchants and banks. The company's revenue for the fiscal year ended in May was $2.77 billion.
Meanwhile, Heartland, based in Princeton, N.J., offers payment-processing services for merchants and education providers, including higher-education loan services and school-nutrition programs. It logged revenue of $2.31 billion for 2014.
Global Payments said the deal will significantly expand its U.S. direct small and medium-size enterprise distribution, merchant base and vertical reach. Current Global Payments shareholders will own about 84% of the merged entity, which will serve nearly 2.5 million merchants.
Specifically, Heartland shareholders will receive 0.6687 share of Global Payments stock and $53.28 for each share held at closing. The deal also includes the assumption of about $500 million in debt, bringing its enterprise value to about $4.3 billion.
Global Payments expects the deal, seen closing in the quarter ending in May, to add to cash earnings by a mid-single digit percentage in fiscal 2017, with a double-digit increase thereafter.
Global Processing had been signaling that it is looking at potential acquisitions. Last year, the company agreed to pay $420 million for Payment Processing Inc., which serves small and midsize U.S. merchants. It completed its acquisition earlier this year of technology company Ezidebit, which has distribution networks in Australia and New Zealand, and established a joint venture with Bank of the Philippine Islands.
The Heartland acquisition comes as the card industry has been particularly vulnerable to consumer concerns about identity theft amid a slew of big breaches in recent years as more Americans choose to pay with plastic rather than cash.
And both Global Payments and Heartland Payments have suffered high-profile data breaches.
Global Payments said in early 2012 that thieves may have gained access to personal information from its merchant customers. For its part, Heartland discovered a data breach that exposed customer information that could be used to duplicate customers' cards in 2009.
In addition to unveiling the acquisition, Global Payments reported stronger-than-expected earnings for its second quarter ended Nov. 30. The company said its cash earnings improved to 76 cents a share, while analysts polled by Thomson Reuters were looking for 75 cents.
Global Payments, which increased in October its earnings outlook for the fiscal year, boosted its projection again, while reaffirming its revenue guidance.
By Josh Beckerman