Sunday, May 20, 2007

Hit #164 (First Data)

First Data Corp. (FDC) is being acquired by KKR in one of the largest cash buyouts ever, for $29 billion. The offer, of $34/share represents a gain of 112.5% over my average cost of $16/share, adjusting for the recent spinoff of Western Union. In a post almost 2 years ago when Intercept (Hit #22) was acquired, I had noted that First Data was undervalued, though I suggested that it was too big to be a takeover target!

The offer frankly seems a bit on the low side. FDC, like Sungard Data (Hit #36) earlier, makes for a good private equity flip candidate.

Another player in this sector, Alliance Data (ADS) got a bid earlier this week from Blackstone. At this point, the remaining players, Fiserv (FISV), Total System Services (TSS), EFunds (EFD), are all trading at expensive valuations. EFunds had recently announced that it is exploring a sale of the company.

Electronic Clearing House (ECHO), could be a good bet, though a speculative one. The earlier offer from Intuit fell through, and the stock has since pulled back substantially.

I have owned a few Fiserv shares for sometime, and bought into ECHO recently.

Western Union (WU), despite being dumped by Buffett recently, is a good long-term bet, as international transfers spike. Someone like Citibank or HSBC may end up buying them eventually, if only for the huge user-base. If you would rather not bet on one horse in a sector, I would recommend buying both Western Union and Moneygram (MGI) shares for the long haul. In an earlier post on the urge to diverge, I had written more on investing in spinoffs.

Previous hit - MedImmune (#163)


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