Archer Capital will pay $47 million for payment systems group Keycorp, both companies said in a statement yesterday, with the troubled electronic payments operator saying it needs the structure of a private equity firm to continue growing.
The deal is a massive loss for telco giant Telstra, which paid $515 million for 51% of the company during the early 2000s. Since then Keycorp has struggled financially, with its share price losing 63% over the past 10 years.
The company’s technological advancements have also been questioned, having gone through several restructures. In 2008 the firm sold its smartcard business, and this year ran into trouble with BankWest and Bank of Queensland after both lenders suffered software outages.
The company now essentially serves as an EFTPOS operator, and its financial woes continue. While net profit after tax increased to $5.5 million in 2010, revenue fell 10% to $46 million. The new offer will provide 58c per share in cash.
A Telstra spokesperson told the Australian Financial Review that even though the sale price is drastically lower than the purchase price, the situation is “not apples with apples”.
“What we are selling is very different to watch we purchased many moons ago,” the spokesperson said. Telstra was contacted by SmartCompany for comment, but no reply was received before publication.
Although Archer has not expressed exactly what it would like to do with Keycorp, it is no stranger to tech, having acquired MYOB in January 2009. In a statement, Archer told SmartCompany that Keycorp was a well-managed business that could perform well with “active” support, and also noted its own “longstanding interest in the payments sector”.
“The Board-recommended offer from Archer Capital represents an excellent opportunity for Keycorp shareholders to receive full value for their shareholding at a healthy takeover premium in a highly illiquid stock,” Archer said in a statement.
Keycorp said the proposed acquisition is subject to several conditions, but it will recommend shareholders all vote in favour of the plan.
“In the absence of a superior proposal and subject to the independent expert’s report concluding the scheme is in the best interests of Keycorp shareholders.”
“Subject to those same qualifications, each director of Keycorp intends to vote in favour of the scheme with respect to their eligible individual shareholdings.”
Chairman Robert Bishop said although the company has forecast solid EBIT next year of up to $5 million, its growth plans are “not without risk”. As a result, he says the company is better suited for growth in a more controlled environment.
“The team at Keycorp has delivered solid results over the past two years, however, it needs to be acknowledged that the company’s recently stated earnings guidance and growth strategy… is not without risk.”
Keycorp was contacted by SmartCompany for comment, but chief executive Joseph Bonin was unavailable.
Patrick Stafford is a freelance journalist and a former deputy editor of SmartCompany.
