Telecredit, a Los Angeles-based check guarantee firm, said Thursday it agreed to be acquired by Equifax, a provider of consumer credit ratings and financial information.
Analysts hailed the tax-free stock-swap deal, valued at about $577 million based on Thursday's closing market prices, as one that would produce a faster growing, more competitive financial information company with revenues of more than $1 billion.
"The deal makes an enormous amount of sense," said analyst Jackson Spears at Chicago Corp., a securities firm. "This is a good fit."
Investors, however, were disappointed in the terms of the agreement, perhaps hoping that Telecredit might fetch a higher price. Telecredit closed at $50.75, down $2.50 in over-the-counter trading Thursday. Shares of Atlanta-based Equifax fell $2.625 to close at $19.50 in New York Stock Exchange trading.
Under the agreement, Telecredit stockholders would have the right to trade each of their shares for 2.69 common shares of Equifax. The companies have yet to set a date for the swap.
Based on Thursday's closing prices, 2.69 shares of Equifax were worth $52.45, or $577 million for the entire company. That's below the $660 million--or $60 a share--analysts had estimated Telecredit would fetch. Telecredit shares had been trading at about $43 last week, just before it announced merger talks with several unidentified firms.
Company executives were enthusiastic about the deal.
"What makes us so excited about merging with Equifax is that our businesses are extremely complementary," said Telecredit Chairman Lee A. Ault III, who will remain with the firm after the merger. "There is virtually no duplication."
Ault said he was uncertain if the merger would trigger any layoffs of the company's 1,200 employees, or if Telecredit's operations would remain independent or be integrated into Equifax's. He said he expected the firm would be "substantially held intact" in the short term.
"Over time, this is going to create opportunities for employees," Ault said.
Telecredit guarantees $7 billion worth of checks a year for merchants. It also processes credit card transactions for credit unions and small- to medium-sized banks and savings and loans. Equifax sells information to insurance companies, operates collection agencies and ranks as one of the nation's largest consumer credit reporting firms.
Spears said the merger would boost the fortunes of both firms, which have experienced slower growth in recent years. He noted that some of Telecredit's retail and financial customers might be interested in using Equifax's collection and credit rating services. Both firms also sell different types of marketing research information.
Telecredit is "looking for ways to accelerate growth and improve marketing," said Spears. "Equifax is in a mature business. This was a good thing for them, too."
"It gives Equifax the capability of offering more services to its customers," said information industry analyst J. Kendrick Noble Jr. at Paine Webber.
In a move to discourage last-minute bidders, Equifax may also receive an option to purchase 19.5% of Telecredit's stock under the agreement. "That will give Equifax some protection in case somebody else should come in," Ault said.
EQUIFAX AT A GLANCE
Year ended Sales Net income Dec. 31 in millions in millions 1989 $840.3 $35.7 1988 743.1 39.4 1987 670.0 30.6
For year ended Dec. 31, 1989:
Assets: $551.1 million
Shares: 49.1 million
12-month range: $22.375-$13.75
Thursday close: $19.50
TELECREDIT AT A GLANCE
Year ended Sales Net income (loss) April 30 in millions in millions 1989 $154.0 $24.9 1988 139.0 (6.9) 1987 121.0 9.5
For year ended April 30, 1989
Assets: $106.0 million
Shares: 11 million
12-month range: $54.25-$32.50
Thursday's close: $50.75