Telstra buys out Keycorp in electronic payments deal

Telstra will take over internet transaction solutions provider Keycorp in a $515 million equity-based deal to form an internet payment service provision business, the carrier announced on Friday.

The alliance will see the companies deliver full-service electronic payment solutions to small and medium enterprises. Specifically, the business will target financial institutions and their merchant customers with IP-based e-commerce solutions.

Telstra has a non-cash stake in the deal. It will invest its EFTPOS Payments Carriage, Installation and Maintenance business in Keycorp's core business.

Keycorp will contribute complementary offerings to the "mix and match" arrangement, including point-of-sale (POS) terminals, smart card solutions and e-commerce payment gateways.

Keycorp will also provide the selling vehicle to deliver the solution to market.

Telstra will consolidate revenue from Keycorp's business into its own profit stream, while Keycorp will capitalise on additional sales of Telstra products, according to Gerry Sutton, Telstra's executive director of emerging business.

The deal is all the more sweet for Keycorp -- it will inherit a carrier with a 50 per cent stronghold on the local electronic payment systems market. This translates to over 1 billion transactions daily, according to Sutton.

He forecast 50 per cent growth over the next few years for the Keycorp venture, envisioning 20 to 30 per cent growth thereafter.

Both companies agreed Telstra would have controlling interest in the deal, executives revealed on Friday. "I don't think either company was strong enough to (create) a new business individually," Sutton said. Keycorp's CEO Michael Thomes added: "We needed to go international and needed an equity partner to take the model out to the world."

Under the deal, Telstra will subscribe for 38.7 million shares at $13.30 per Keycorp share, giving Telstra a 51 per cent stake in Keycorp. However, Keycorp will continue operating independently.

Sutton asserted the deal was also "pro-competition, not anti-competition".

"I don't think (competition) is a big deal, really," he said, denying suggestions that Telstra was trying to take on the financial services sector through the deal. "I don't think we're entering into a feeding frenzy."

The deal is subject to Telstra and Keycorp board approval and a review from the Australian Competition and Consumer Commission (ACCC).

Shareholder approval would be "finalised" in October while ACCC approval would wrap up in August, Sutton said.

The companies plan to expand the new business to the US, Canada, Asia and Europe.

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