Kansas City-based DST Systems has found a use for $157.6 million of dollars of State Street stock it owns, swapping it for full ownership of a joint venture the companies share.
DST Systems said it also agreed to pay $175 million in cash for State Street’s half-interest in another joint venture the companies share. Combined, the transactions are worth $332.6 million and are expected to boost DST’s revenues by $660 million the first year.
The ventures are called Boston Financial Data Services Inc. and International Financial Data Services Limited in the United Kingdom. Both ventures provide various services to financial firms. DST becomes the 100 percent owner of each.
“The consolidation will increase DST’s total revenue by close to 50 percent, all in the financial services segment, over the $1.4 billion reported in 2016,” Pete Heckmann, managing director at Avondale Partners, said in a note to clients.
In the deal for Boston Financial Data, DST is swapping 2 million shares of State Street that it owns, rather than paying cash. The announcement said this swap – shares for a business – makes the transaction nontaxable.
“These businesses have always been strategically important to DST and we are confident that we can drive significant enhancements to the client experience and improve execution of key initiatives, while unlocking meaningful synergies and enhancing value to DST and its shareholders,” Steve Hooley, DST’s CEO, said in the announcement.
DST said the deals will boost its operating income by $40 million the first year. It additionally expects to save $20 million in costs from synergies in the first 18 months after the Boston Financial deal is completed in a few days.
State Street and DST continue their joint venture that operates in Canada, Ireland and Luxembourg.
DST acquired the State Street shares in exchange for its half ownership of Investors Fiduciary Trust in a 1995 transaction. It has been selling some of the shares in recent years. The swap deal leaves DST with about 200,000 State Street shares.