WASHINGTON - The Justice Department filed suit on Oct. 23 to block First Data Corp.'s $7.3 billion acquisition of Concord EFS Inc., contending the deal would substantially reduce competition in the EFT industry, particularly in PIN-based debit transactions.
"If allowed to proceed, this merger of two of the three largest PIN debit networks will lead to higher prices to merchants, forcing them to pass on those price increases to many consumers throughout the United States in the form of higher prices for general merchandise," said R. Hewitt Pate, assistant attorney general for the Justice Department's antitrust division, in a statement.
The lawsuit contends that, using even conservative estimates, the companies would control 45 percent of the PIN debit business in the United States if the merger went ahead.
According to a Reuters report, some analysts have estimated that the combination of First Data's majority interest in the NYCE network, along with Concord's Star, MAC and Cash Station networks, would give a combined company control of about 70 percent of the PIN debit market.
The government suit was filed in U.S. District Court in Washington. Also joining to block the merger are Connecticut, Illinois, Louisiana, Massachusetts, New York, Ohio, Texas and the District of Columbia.
Concord shares fell 20 percent, or $2.76, to $10.82 on the New York Stock Exchange. Shares of First Data gained 50 cents to $36.40.
First Data, based in Greenwood Village, Colo., and Memphis, Tenn.-based Concord announced the stock deal in April. The merger, officials estimated, would result in a single company that would generate $10 billion in annual revenue and employ 31,000 people worldwide.
In a statement, First Data and Concord characterized the complaint as inaccurate and ill-advised. First Data and Concord officials said they will ask the Court to rule on the Justice Department's request to enjoin the deal well in advance of the Jan. 31, 2004 termination date in their merger agreement.
"It seems that the DOJ has either misinterpreted or ignored both rapidly changing industry dynamics as well as a common-sense interpretation of a marketplace that clearly encompasses both PIN and signature debit. For instance, they seem to have ignored recent wins by competitors for some of the largest banks in the U.S.," said Charlie Fote, First Data's chairman and chief executive, referring to recent decisions by Wells Fargo and Wachovia to transfer their debit business from Concord to Visa.
According to Fote, the combined company would handle less than 45 percent of PIN debit transactions. "Only two years ago, the DOJ approved Concord's acquisition of Star, which resulted in Concord handling approximately 60 percent of exactly the same transactions," he said.
First Data contends that the merger will encourage innovation and offer greater choice for consumers and merchants.
The two companies intend to hold their previously scheduled shareholder meetings on Oct. 28.
