Could Labry Move to Merchant Unit Presage a Breakup of First Data?

With Ed Labry this week taking over First Data Corp.'s acquiring business, including First Data Merchant Services, some industry observers are figuring the Denver-based processing giant may be looking toward spinning off both the merchant division and the lucrative Western Union franchise as independent companies some time within the next 12 months. “It's at least 50-50 and maybe better that the company will be broken up, based on what I'm hearing from Wall Street,” says Stamford, Conn.-based payments consultant Steve Mott, who follows First Data closely. Mott says installing Labry, a well-regarded payments executive, to run the merchant operation gives First Data a strong hand at the helm whether the company stays together or not. “Putting Labry in that business is the best hedging strategy [for First Data],” he says. Citing a quiet period prior to an earnings release, First Data refused to comment on Labry's new role beyond a terse announcement released earlier this week. “We don't comment on market rumors and speculation,” a company spokesman said regarding the breakup talk. Ever since Henry C. (Ric) Duques returned as chief executive late last year (Digital Transactions News, Nov. 29, 2005), observers have speculated on how he might act to solve some nettlesome growth problems inherited from outgoing chief executive Charley Fote. Chief among these is the malaise affecting the company's signature account-processing unit, once its foundation and now a drag on earnings growth after suffering a series of major client defections. First Data brought in investment banker Morgan Stanley in November to examine options for the unit, which could include a spin-off or sale (Digital Transactions News, Nov. 9, 2005). The other two major pieces of First Data, the merchant-services and money-transfer units, are performing far better than the card-account business, but some observers wonder whether the company could create more value for shareholders by spinning them off. “If you're Ric [Duques], maybe the best thing is to unlock that value today while things are as good as they've been for a while,” says one observer. The appointment of Labry, meanwhile, is seen as a good move for First Data's prospects in acquiring. The former head of Concord EFS Inc., which First Data acquired in 2003, now adds the merchant-acquiring business to his portfolio, which includes First Data's Prepaid Services operation. “Putting Labry in charge of that business is the best news out of that company in a long time” says Mott. “Merchants love Ed and respect him, and he has industry credibility as someone who understands the business.” Mott says with Labry in charge, the value of the merchant division could be increased in any possible spin-off. “Without Ed there, there's more [valuation] uncertainty,” he says. In the same announcement this week, First Data also said its president of Domestic Enterprise Payments, Scott Betts, is leaving the company.