First Data 2007 Annual Report Download - page 34

FIRST DATA CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
Merger
On April 1, 2007, the Company entered into an Agreement and Plan of Merger (the "Merger Agreement") with New Omaha Holdings L.P., a Delaware
limited partnership ("Parent"), and Omaha Acquisition Corporation, a Delaware corporation and a subsidiary of Parent ("Sub"). Parent is controlled by
affiliates of Kohlberg Kravis Roberts & Co. ("KKR" or the "sponsor"). On September 24, 2007, under the terms of the Merger Agreement, Sub merged with
and into the Company ("the merger") with the Company continuing as the surviving corporation and a subsidiary of First Data Holdings Inc. ("Holdings";
formerly known as New Omaha Holdings Corporation) a Delaware corporation and a subsidiary of Parent.
As of the effective time of the merger, each issued and outstanding share of common stock of the Company was cancelled and converted into the right
to receive $34.00 in cash, without interest (other than shares owned by Parent, Sub or Holdings, which were cancelled and given no consideration).
Additionally, vesting of FDC stock options, restricted stock awards and restricted stock units was accelerated upon closing of the merger. As a result, holders
of stock options received cash equal to the intrinsic value of the awards based on a market price of $34.00 per share while holders of restricted stock awards
and restricted stock units received $34.00 per share in cash, without interest. Vesting of Western Union options, restricted stock awards and restricted stock
units held by FDC employees was also accelerated upon closing of the merger.
Immediately following consummation of the merger, Michael D. Capellas was appointed as Chief Executive Officer ("CEO") of the Company. Capellas
succeeds Henry C. "Ric" Duques who announced his intention to retire within two years when he returned as Chairman and CEO in late 2005.
The merger was financed by a combination of the following: borrowings under the Company's new senior secured credit facilities, new senior
unsecured interim loan agreement and new senior subordinated unsecured interim loan agreement, and the equity investment of Holdings. See Note 2 of the
Company's Consolidated Financial Statements in this annual report on Form 10-K for detailed discussion of purchase price and transaction costs, and Note 10
for a detailed discussion regarding the tender of previously existing debt as well as the debt issued in conjunction with the merger.
The Company applied purchase accounting to the opening balance sheet and results of operations on September 25, 2007, with subsequent adjustments
to December 31, 2007, as the merger occurred at the close of business on September 24, 2007. The purchase accounting had a material impact on the
successor period presented due most significantly to the amortization of intangible assets and will have a material impact on future earnings. The Company's
purchase accounting is in its preliminary stages. The value assigned at December 31, 2007 to intangible assets is based on preliminary valuation data and is
expected to change due to finalization of the valuation. The valuation of fixed assets is in process, with the values assigned at December 31, 2007 being based
on historical value which represents the Company's current best estimate. The Company is also in the process of working through other potential purchase
accounting adjustments that mostly relate to pre-acquisition contingencies and finalization of management's restructuring plans.
The Company has implemented a "100 day plan" to provide strategic direction for the Company under new leadership. The plan includes generating
organic growth through improved sales effectiveness and accelerating new product innovations. The plan also captures efficiencies related to the
simplification of domestic and international operations and other near term cost saving initiatives as well as certain reductions in personnel. In accordance
with this plan, in November 2007, the Company terminated approximately 6% of its worldwide work force. A majority of them ceased working before
December 31, 2007. The Company expects that the remaining employees will cease working at various times through the first six months of 2008. A majority
of the successor severance costs were recorded in purchase accounting while the remaining amount was or will be recorded through current operations. The
Company expects to achieve approximately $200 million in annual savings from the reduction of corporate and business unit spending, including the
headcount reductions in November 2007 noted above.
Official Check and Money Order Wind-down
In the first quarter of 2007, the Company announced its intent to wind-down the official check and money order business included within the IPS
segment. The official check and money order businesses are conducted by a subsidiary of the Company, Integrated Payment Systems Inc., with separate
creditors and whose assets, including the investment portfolio associated with the official checks and money orders, are not intended to be available to
creditors of First Data nor its other subsidiaries. The Company expects the wind-down of the majority of the business to take place in 2008. In the fourth
quarter of 2007, the Company completed the repositioning of the investment portfolio associated with this business from long-term municipal bonds to short-
term investments, the majority of which were short-term tax-exempt variable rate demand notes at December 31, 2007. Associated with this repositioning, the
Company terminated the interest rate swaps used to hedge the portfolio. In January 2008, these short-term tax-exempt variable rate demand notes were
repositioned into mostly short-term taxable investments.
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