By Siddharth Cavale and Liana B. Baker
(Reuters) - U.S. financial technology provider Fiserv Inc (NASDAQ:FISV) said on Wednesday it will buy payment processor First Data Corp in a $22 billion (£17.1 billion) all-stock deal, the biggest ever acquisition in a booming market in digital payments technology.
In a sector overflowing with different providers and initiatives spurred by the growing digitisation of everyday payments for goods and services, Fiserv is one of the biggest technology providers to banks by revenue.
A source who worked on the deal said Fiserv had viewed First Data as undervalued since its stock market launch in 2015. It examined a number of companies that were aggressive in acquiring merchants to use retail payment terminals and thought First Data was the best option, the source added.
Fiserv said in a statement that the deal enables it to offer end-to-end services to financial clients from enrolling new customers to providing multiple ways to handle physical or digital payments.
Fiserv will offer $22.74 per share for each share held by First Data shareholders, a premium of nearly 30 percent over Tuesday's closing stock market price.
After the deal's close, Fiserv shareholders will own 57.5 percent of the combined company and First Data shareholders will own 42.5 percent.
First Data's shares rose 17 percent to $20.62 in early trading, while Fiserv shares fell 7 percent to $69.83.
The deal follows PayPal Holdings Inc's offer to buy Swedish startup iZettle last year for $2.2 billion, while the big payment networks Visa Inc (NYSE:V) and Mastercard (NYSE:MA) Inc have also made several bolt-on acquisitions.
The companies said the combination will help generate more than $4 billion in free cash flow in the third year after the deal closes. This will include $900 million in cost savings over five years as they eliminate duplicate corporate structures and streamline their tech operations.
Fiserv Chief Executive Officer Jeffery Yabuki will become CEO and chairman of the combined company, while First Data CEO Frank Bisignano will become its chief operating officer.
Kohlberg Kravis Roberts & Co, which controls about 39 percent of First Data's common stock, has agreed to vote in support of the deal, the companies said. An affiliate of KKR will own 16 percent of the stock in the combined company.
The combined company's adjusted earnings per share is expected increase by more than 20 percent in the first full year after the deal's expected c lose in the second half of 2019, the companies said.
J.P. Morgan Securities LLC was the financial adviser to Fiserv and BofA Merrill Lynch for First Data.