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Discover to buy Diners Club

From the Associated Press

The world’s oldest credit card brand is switching hands. In a $165-million deal, Discover Financial Services is buying 58-year-old Diners Club International from Citigroup Inc.

This means that in a couple of years, people with Discover cards will get to use them when they travel abroad.

The deal, announced Monday, comes as Discover tries to become accepted more outside the United States and among big corporate spenders, and as Citigroup sheds businesses it considers nonessential to raise cash and lower costs. Both companies have had a rough time over the last several months with deteriorating consumer credit conditions in the U.S. and Britain.

Discover shares rose 95 cents, or 5.5%, to $18.09. Shares of Citigroup -- which bought Diners Club in 1981, when Citigroup was a smaller company known as Citicorp -- rose 52 cents, or 2.2%, to $24.60.

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The Diners Club card came into being in 1950, when businessman Frank McNamara issued the charge card for people to use at restaurants in New York.

In the ensuing decades, Diners Club ballooned into a brand accepted at more than 8 million locations in 185 countries -- used particularly among the corporate jet-setting crowd.

Discover is taking over Diners Club’s payment network, brand and license agreements. It will not be providing credit to the Diners Club cardholders. That lending will continue to be done by the existing institutions that issue Diners Club cards, such as Citigroup. Rather, Discover will be making money by processing the transactions.

David Nelms, Discover’s chief executive, said that he expected the deal to eventually boost dollar volume at the company’s third-party payments business 30% and that segment’s revenue 60%.

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Right now, more than $30 billion is spent each year with Diners Club cards outside North America by more than 80,000 commercial and business clients.

Discover expects the deal with Citigroup to be completed within three months, and the total integration of Diners Club to take two to three years.

Discover became independent from investment bank Morgan Stanley last summer.

Red Gillen, a card industry analyst at research and consulting firm Celent, called Discover’s acquisition of Diners Club a “major salvo” for the card company. He wrote in a note that the deal suggested that Discover was targeting American Express Co.'s specialty: the high-end, corporate travel-and-entertainment merchant sector.

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“With this acquisition, Discover has certainly upped the ante in the card market,” Gillen wrote, “but it will soon have to prove that its strategy and investments are chipping away at the other major payment brands.”

Of the four major U.S. card brands -- American Express, Visa, MasterCard and Discover -- Discover has the lowest market share.


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