Euronet expands prepaid business with acquisition of UK processor

LEAWOOD, KANSAS -- Euronet Worldwide, Inc. (Nasdaq: EEFT) has signed an agreement to acquire UK-based e-pay Ltd., the largest electronic payments processor of prepaid mobile airtime top-up services in the UK and Australia, with approximately 35 percent and 75 percent market share in those regions, respectively.

Founded in 1999, e-pay currently supports top-up purchases for mobile service providers at more than 50,000 point-of-sale terminals in approximately 18,000 retail locations.

According to a news release, e-pay has agreements with nine mobile service providers, including UK providers Vodafone, T-Mobile, O2, Orange and Virgin. Australian agreements include Telstra, Virgin Mobile, Vodafone and Optus.

In addition to delivering top-up services at the mobile operators' retail outlets, e-pay also has distribution agreements with major retailers such as Tesco, Safeway, Woolworths (Australia), Asda, Boots, 7-Eleven (Australia), BP, Esso and Forbouys. Additionally, e-pay offers prepaid top-ups on a number of POS terminals in independent retail locations.

In addition to its UK and Australia operations, e-pay owns 40 percent of e-pay Malaysia, which offers electronic top-up through approximately 2,600 POS terminals. According to the release, e-pay Malaysia has approximately 60 percent of the electronic top-up market share in that region. Clients include mobile operators such as Maxis, Celcom, TM Touch and Digi, in addition to retailers like BP, 7-Eleven and Shell.

According to the release, e-pay's business will complement Euronet's products that enable consumers to purchase prepaid airtime from ATMs and directly from the handset. Currently, Euronet supports top-up services for 16 mobile operators in nine countries, including Hungary, Poland, Czech Republic, Croatia, Romania, Slovakia, Egypt, India and Indonesia.

Under the agreement, Euronet will purchase of 100 percent of e-pay's shares from certain individual shareholders, including e-pay founders John Gardiner and Paul Althasen. According to the release, all key e-pay executives have signed long-term employment agreements with the company and will lead Euronet's prepaid and POS business segment.

All of e-pay's 83 employees also will be retained to continue operations, sales, development and customer service activities.

"The number of electronic prepaid transactions is growing at a significant pace, and e-pay has positioned itself to take advantage of the growth," said Michael J. Brown, Euronet Worldwide chairman and chief executive, in the release. "In three short years, this company has turned profitable and it continues to grow rapidly."

According to the release, e-pay experienced revenue growth of approximately 37 percent per quarter in 2002. In 2002's fourth quarter, e-pay generated revenue of approximately $24 million and operating income of approximately $2.5 million.

The deal is expected to close by the end of the week. Of the $76.2 million purchase price, $30.2 million will be paid in cash, $19 million or 2,497,504 shares, in Euronet common stock, and the remainder in deferred purchase price or under promissory notes executed at closing.

According to the release, the deferred portion of the purchase price, approximately $8.6 million, is payable based upon e-pay's free cash flows. Approximately $7.4 million of the notes are convertible into Euronet common stock at a conversion price of $11.43 per share, or approximately 647,000 shares, and the remaining $11 million are unsecured promissory notes. Shares issued in this transaction represent a 10.5 percent increase over current shares outstanding. If all rights of conversion are exercised, shares issued in the transaction would be approximately 13.2 percent of current shares outstanding.

Excluding the one-time gain of 62 cents per share for the previously announced sale of its UK ATM subsidiary, Euronet expects that, with the acquisition of e-pay, its fully diluted earnings per share for 2003 will be approximately 20 cents to 22 cents per share.