May 17, 2010 3:00 am

American Express in move for RBS arm

American Express, the credit card company, has teamed up with UK private equity house Permira to bid for Royal Bank of Scotland's payment processing division, as buy-out groups bring in commercial partners for the £2.5bn auction.

Atos Origin, the French IT services group, meanwhile, has joined the private equity consortium of CVC Capital Partners and Welsh Carson Anderson & Stowe to bid for RBS's Global Merchant Services division.

GMS is centred on the WorldPay payments business and incorporates the Streamline cards operation that dominates in the UK. RBS - 70 per cent owned by the UK taxpayer - must sell the unit under the terms of a European Commission state aid ruling.

The bank has signalled that private equity buyers may need to link with strategic partners to prove they have the capability to run the complex payments business, according to people familiar with the sale.

GMS handles more than half the UK's face-to-face transactions using payment cards such as Visa and MasterCard. RBS is understood to have concerns that a pure private equity buyer may not have the scale or expertise to manage the business.

All groups declined to comment, but two bidders said the technical and commercial challenges of carving out the business from RBS meant that private equity groups could benefit from having strategic partners.

While the unit processes 500 credit and debit card payments per second - one bidder said it had "five-nine" precision, meaning it was reliable 99.999 per cent of the time - the division's IT system is old and may need updating soon.

American Express processes payments for millions of customers in 130 countries and its experience could help the RBS division to expand in emerging markets.

Atos Origin has been interested in the auction since the start, but the group failed to reach the second round, forcing it to join forces with a rival bidder.

Welsh Carson Anderson & Stowe, which is focused on the healthcare sector and the information and business services sector, already owns Transfirst, a US payment processing services and technology provider.

There are still a number of other bidders in the fray, including Moneris, the Canadian card payments company, and pure private equity buyers TPG, Warburg Pincus and a consortium of Advent International and Bain Capital.

Advent has an edge as it owns 51 per cent of the credit card processing unit of Fifth Third Bank, while Warburg Pincus has a minority stake in Fidelity National Information Services, the US payment and bank processing company.

Toronto-based Moneris, a joint venture between Royal Bank of Canada and Bank of Montreal, processes card payments for more than 350,000 North American merchants.

The bidders have until May 31 to submit second-round bids.

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