Barclays PLC plans to use the monoline credit card issuer Juniper Financial Corp. to introduce one of the most quintessential British brands - Barclaycard - to the U.S. public, and to build lending volume in the United States.
And to manage that effort, Barclays would retain Juniper's two leaders, the credit card industry all-stars Richard W. Vague and James W. Stewart 3d, who led the issuer First USA before selling it to Bank One Corp.
Barclays announced Wednesday that it would pay $293 million - a 15.2% premium - for the 98% stake in Juniper currently owned by Canadian Imperial Bank of Commerce. The British banking company is also buying the 2% stake owned by the Wilmington, Del., issuer's senior managers.
The deal is expected to close this year.
CIBC called its stake in Juniper, which has $1.4 billion of receivables and 700,000 accounts, strictly a strategic investment that it decided to divest.
In a conference call Wednesday morning, Barclays executives said they plan to issue Barclaycards in the United States while retaining the Juniper brand, though one of the two brands might not ultimately survive.
"It depends how successful the experiment is" with Barclaycard, Gary Hoffman, the chief executive officer of the Barclaycard unit, said in a telephone interview after the conference call. "We'll test" the two brands "alongside each other."
Juniper offers cards in the names of dozens of cobranding partners, including Mazda Motor Corp., Orbitz Inc., Midwest Airlines Inc., Caesars Entertainment Inc., and Best Western International Inc.
Cobranding had been a big focus for Mr. Vague and Mr. Stewart at Bank One and at First USA and will remain a focus of Barclays, Mr. Hoffman said. "This management team has a real competence in building that kind of business. We will be incentivizing them to deliver on some very tough performance targets."
Though the "vast majority" of Juniper's receivables are in cobranded accounts, "we intend to expand the Juniper brand," he said.
Mr. Vague called the deal energizing.
"The Barclay brand itself has such enormous cachet," he said. "It really makes us feel that much more enthusiastic about the business generally."
The Barclaycard brand was introduced in 1966, making it one of the older names in the industry, Mr. Vague said. "Barclaycard is essentially synonymous with the words 'credit card' in the U.K."
Barclays executives "have told us is that they want to be a major player in the U.S. credit card market, and, secondly, they believe very strongly in the partnership approach that has been central to Juniper's strategy," he said. "So I think what [the deal] really means to myself and my colleagues here at Juniper is accelerated growth and lots of opportunities."
One of the Barclays executives involved in the deal was John Varley, who would become the group chief executive Sept. 1.
Mr. Vague elaborated on the anticipated difference in ownership.
"CIBC has been a great owner and a great supporter of Juniper's, and yet U.S. consumer businesses were not central to CIBC's current strategy," he said. "Barclays is the largest credit card issuer in Europe and has significant operations in Africa and the Caribbean and regions beyond. It really has the very overt strategic goal of being a global credit card issuer."
Under Barclays, Juniper would be "truly an operating subsidiary that will be integrated strategically into the global objectives, and frankly, that is very exciting," Mr. Vague said.
Peter Herbert, the managing director of Barclaycard International, said the details of how and where the Barclaycard name would be used have not been worked out. However, "we think the Barclaycard brand could potentially play well in some segments of the market."
In a telephone interview from Mr. Vague's office, Mr. Herbert said, "For us, this is a really important first step into the U.S. market, which we all know is the biggest cards market in the world. It's a small step relative to the size of Barclays, but it is a very important strategic one for us. We see it as building a global cards business. This is for us very much a growth story."
Juniper has grown quickly over the past four years, he said. "We'd like to accelerate that pace of growth, and we just think there's lots of opportunity to do that. This is one of a number of steps that are consistent with building this international cards business."
Barclays said it would use its Barclays Capital's corporate banking relationships to drive growth at Juniper.
"The U.S. market is the most important in the world," accounting for 65% of the global card business, Mr. Hoffman said. "It also is the most mature and the most competitive marketplace in the world."
He downplayed the importance of Barclays' own venerable brand. Barclaycard is the No. 1 credit card issuer in Europe, but it lacks name recognition among U.S. consumers.
In the United States, "people say, 'I have a Visa card' or 'I have a MasterCard,' " rather than associating a card with its issuer, Mr. Hoffman said. The situation is somewhat different when it comes to affinity cards, because the cobranding partners typically offer rewards such as frequent flier miles.
"This is a low-risk strategy for us, because it is a partnership business," Mr. Hoffman said. "It is much more of a B-to-B market."
The Juniper acquisition would nearly double the size of Barclays' international card portfolio, Mr. Hoffman said. Barclays has 1.8 million cards outstanding in continental Europe and Africa, plus 10.8 million in the United Kingdom.
Barclays does not expect Juniper to turn a profit for at least two years. Mr. Hoffman said he expects it to run at an annual operating loss of $70 million to $100 million before producing an operating profit of $150 million in the third or fourth year.
"We expect to significantly expand" the marketing budget "in order to fund growth," he said.
Barclays' goal is "to have an international credit card business that within 10 years will be as meaningful a contributor to Barclays PLC" as the U.K. card business is now, Mr. Hoffman said.
In the first half Barclays' card operation generated 17.8% of the parent company's $4.38 billion profit, he said.
Mr. Hoffman held open the possibility of further deals in the United States "where our valuation criteria are met." However, Juniper "is a platform for growth in itself."
The sale would be a further pullback by CIBC from the U.S. market. In January 2003 the Toronto company sold its CIBC Oppenheimer retail brokerage and asset management units. In November 2002 discontinued Amicus, its U.S. retail electronic banking business.
CIBC and Juniper historically characterized their relationship as that of a primary investor. Rob McLeod, a CIBC spokesman, said Wednesday that the relationship was a factor in its decision to sell.
Juniper "was not viewed as a strategic asset, so we chose to divest it in an orderly way," he said.
CIBC, which paid $95 million in 2001 for its initial 40% stake in Juniper, would receive $293 million in the sale.
On Wednesday, CIBC said it expects to book a pretax gain of about $75 million. Mr. McLeod would not give any further details on Juniper's performance as an investment. "We do not provide a breakdown of the performance of individual units like Juniper," he said.
But there is some evidence that CIBC's relationship with Juniper was not entirely smooth.
In July 2002 Private Equity Week reported that the Menlo Park, Calif., early-stage venture investing firm Benchmark Capital had filed a lawsuit in Delaware Chancery Court accusing CIBC of essentially trying to squeeze out other investors when Juniper needed additional funding. The court upheld CIBC's actions.
Benchmark could not be reached for comment.
Arthur Hollingsworth, the managing partner of the Dallas private equity firm Lewis Hollingsworth LP, said evaluating such investments can be difficult.
"It gets tricky when banks also have venture capital arms," he said in an interview Wednesday. "It does raise a question whether this is a strategic acquisition or an investment acquisition."
Mr. Hollingsworth pointed to CIBC's September 2001 announcement of its original investment in Juniper, in which CIBC called the deal "a strategic equity investment."
"At least when they went into it, they made it sound like a pretty strategic deal," Mr. Hollingsworth said.
Mr. Hoffman said that card issuers typically run at a loss for their first three or four years. The 4-year-old Juniper would run at a loss for two years under Barclays ownership, because the planned increase in the marketing budget, he said.
John C. Grund, a partner at First Annapolis Consulting, a Linthicum, Md., firm specializing in credit cards, said it would be "a misnomer" to call the Juniper sale an exit strategy for CIBC. Instead, he called it "a financial investment, much like a private equity firm would invest in a company."
He noted that the acquisition would be the third major U.S. credit card one by a British banking company in the past year. In November, HSBC Holdings PLC acquired Household International of Prospect Heights, Ill. Royal Bank of Scotland Group PLC announced a deal in February for People's Bank of Bridgeport, Conn.
A couple of months ago Barclays had been rumored to be interested in acquiring Providian Financial Corp. of San Francisco, Mr. Grund said.
"It's not surprising they found their way into a Juniper marriage," Mr. Grund said. "They get the platform, they get the management team, they get the existing book of business to grow from."
He called the deal "an integrated turnkey approach to the U.S. credit card market," adding, "The management team is as important as the underlying receivables."
Mr. Herbert said he would not comment on other companies Barclays might have looked at buying.
Mr. Vague characterized the deal as a good match.
Barclays "is a young organization, it is an ambitious organization, and from a style and kindred-spirit standpoint, these guys have us very excited," he said. "This is really a landmark moment for us."
