ISO Ties Helped Seal CyberSource’s Bid for Authorize.Net

CyberSource Corp., which on Monday announced it is buying rival online gateway provider Authorize.Net Holdings Inc. for $565 million in stock and cash, plans to leverage Authorize.Net's relationships with independent sales organizations and other third-party resellers to reach small e-commerce merchants. The transaction, expected to close this fall, “dramatically accelerates an initiative CyberSource is already pursuing to penetrate the small-business market,” said William S. McKiernan, chairman and chief executive of Mountain View, Calif.-based CyberSource, in a conference call about the deal. McKiernan and Authorize.Net officials also stressed that the combination will allow each company to offer new products and services to the client base of the other. Authorize.Net, for example, sells a proprietary e-check product that allows merchants to settle transactions on the automated clearing house. CyberSource, meanwhile, looks forward to offering its fraud-management systems and an online-auction-payment service, called BidPay.com, to Authorize.Net's merchants. “Many of the 175,000 Authorize.Net customers are also on eBay, so it's a great opportunity for us to promote BidPay to that subset,” McKiernan noted during the call. Executives with the two companies took pains to emphasize that current reseller channels and customer relationships will not be disturbed by the deal. CyberSource, which claims a client base of 20,000 mostly mid-size and large merchants, sells primarily via direct contacts. Authorize.Net uses ISOs as well as shopping-cart and Web-services vendors. “We want to make it very clear to our channel partners that we are committed to them,” said Roy Banks, president of Authorize.Net, during the call. “Through this combination [with CyberSource], we will be able to offer more payment products that will add value to their customers.” Noting that “CyberSource hasn't had too much success in the ISO channel,” McKiernan said the combined company will be able to work more closely with sales agents, though specific pricing models haven't yet been worked out. “We have to figure that out before the deal closes,” he said. The deal combines two companies that collectively processed 1.1 billion transactions last year worth more than $65 billion. “This transaction, once completed, will be a key event in the evolution of global e-commerce,” McKiernan said. Under the deal, which has been approved by the boards of both companies, Authorize.Net shareholders will receive 1.1611 CyberSource shares for each Authorize.net share they hold, as well as a proportional share of approximately $125 million in cash. Upon closing, CyberSource shareholders will own about 53% of the merged entity, with Authorize.Net shareholders holding the balance. McKiernan will be chairman and chief executive of the combined company. As the two businesses serve complementary markets, McKiernan said, the only “cost synergy” he foresees is that Authorize.Net's Marlborough, Mass., office will be shut down when the deal closes.