Could the Ceridian Deal Lead to a Comdata-Certegy Combo?

The move by Ceridian Corp., owner of fast-growing payment processor Comdata Corp., to go private in a deal involving Boston-based Thomas H. Lee Partners LLC and insurance-industry processor Fidelity National Financial Inc. represents the latest in a series of processor deals backed by private equity and could lead to yet another transaction that would combine Comdata with another processor. The $5.3 billion deal, announced late Wednesday, culminates a review of strategic options that Bloomington, Minn.-based Ceridian’s board of directors initiated in February.n
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A news release announcing the plan makes no mention of splitting the Brentwood, Tenn.-based Comdata unit from Ceridian. Ceridian’s main business of payroll processing and other human-resources data services is growing slower than Comdata, a fleet and prepaid card provider and aspiring merchant processor. A vocal shareholder proponent for change is a New York City-based hedge fund called Pershing Square Capital Management L.P., which is waging a proxy fight with Ceridian’s chief executive, Kathryn V. Marinello (Digital Transactions News, Feb. 16). A Ceridian spokesperson would not comment beyond the press release announcing the deal, and a spokesperson for Thomas H. Lee did not return a call for comment.n
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“The primary goal of the review of strategic alternatives that we announced on Feb. 13, 2007, was to maximize value for our shareholders,” Ceridian chairman L. White Matthews III said in the release. “The board, along with its financial and legal advisors, evaluated a broad range of alternatives and concluded that the sale of Ceridian to THL Partners and FNF represents the best and most certain way to achieve that goal.”n
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Fidelity National Financial would have a minority stake in Ceridian, and other partners may be brought into the deal, according to the release. The deal marks a return of sorts for Jacksonville, Fla.-based Fidelity into the payment-processing business. It was only last November that FNF spun-off its partially publicly held subsidiary, Fidelity National Information Services Inc. (FIS), into a fully independent company. FIS includes the business of check and card processor Certegy Inc., which FIS’s former parent bought in early 2006. Ties between the companies still exist, however. At the top, FNF’s chairman and chief executive, William P. Foley, II, also is board chairman of FIS.n
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A combination of the former Certegy with Comdata might make sense, according to payments consultant David Lott, senior vice president at Alpharetta, Ga.-based Speer & Associates Inc. “Scale is becoming more and more important,” Lott says. “The transaction-processing business really has become very commoditized. Therefore, the more scale you have the better you are from pricing standpoint.”n
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Ceridian’s buyers would pay $36 in cash per share. That’s only 5.3% above Ceridian’s $34.19 close on May 30, just before the announcement, but 17% above the share price just before the strategic review was announced and 56% over the Oct. 6, 2006 close, the last trading day before Ceridian announced Marinello would take over as president and chief executive.n
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The proposal needs approval from Ceridian’s shareholders at the firm’s yet-to-be scheduled annual meeting. Ceridian says that meeting, which could include a vote on a Pershing-backed slate of candidates, would be held no later than Sept. 21.n
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Other recent processor deals include the planned $29 billion buy-out of First Data Corp. by Kohlberg, Kravis, Roberts & Co. and Blackstone Capital Partners VLP’s $7.8 billion bid for Alliance Data Systems Corp. (Digital Transactions News, May 17). In a filing this week, First Data said two other bidders expressed interest in the company before its board gave final approval to KKR’s bid.