Independent sales organizations and merchant acquirers wondering what steps they should take as VeriFone Systems Inc. prepares to buy Hypercom Corp., its chief U.S. rival in the point-of-sale terminal market, should remain patient, observers suggest.

Indeed, plenty of time remains before the companies expect to close the $485 million deal in the second half of 2011 (see story).  “Things may stay the way they are for another year,” says David Fish, senior research analyst at Mercator Advisory Group Inc., a Maynard, Mass.-based firm.

However, ISOs and acquirers, especially those that favor one brand over the other, eventually may face choosing a nonpreferred product should the merged VeriFone-Hypercom entity thin out its products lines because of redundancy. They also may have to contend with a potential shift in pricing power, especially if VeriFone is able to retain Hypercom’s U.S. business.

VeriFone says its chief purpose in buying Hypercom is to increase its footprint in Europe, but it may find its combined U.S. presence too large for government antitrust regulators, some observers suggest.

Relationships between ISOs, acquirers, and point-of-sale equipment distributors are not likely to change much between now and when the deal closes, Fish says. Besides, no one knows what product lines might be consolidated, he notes.

“We’ll have to wait and see what new products and new agreements might transpire,” Fish says.

The potential for sufficient market power to force prices up could prompt the U.S. Department of Justice to require VeriFone to sell Hypercom’s U.S. business to pass antitrust muster, says Robert Dodd, an analyst at Memphis, Tenn.-based Morgan Keegan & Co. Inc.

“The most likely assumption that I’m making is that to get the deal to close, [VeriFone] will have to sell off the U.S. business of Hypercom because the overlap is very substantial,” Dodd tells PaymentsSource. The Justice Department would want to ensure pricing power would be balanced, he says.

The potential buyer of Hypercom’s U.S. business would have to be able to compete strongly against VeriFone, Dodd says. “The POS-terminal market shouldn’t be weaker than it is now,” he says.

Many observers consider France-based Ingenico S.A. a top contender for Hypercom’s U.S. business, which analyst Gil B. Luria of Los Angeles-based Wedbush Securities estimates generates $100 million in annual revenue. VeriFone has said it is willing to divest that business, if necessary.

Ingenico does not comment on other companies, an Ingenico spokesperson says.

But other players also could seek Hypercom’s U.S. business to bolster their positions in the lucrative North American market, Mercator’s Fish suggests.

“North America traditionally has been a stronghold of VeriFone and Hypercom, Fish says. “Their competitors have had eyes on increasing their market share within the largest payment card market in the world for a while.”

Pax Technology Ltd., a China-based POS-terminal maker, and First Data Corp., an Atlanta-based payment processor with its own POS terminal line, also may contend, Fish says. Pax, with offices in Atlanta, has been pushing to increase its visibility among ISOs and acquirers (see story).

“We have seen more Ingenico terminals in the states, and First Data’s foray into the private-label equipment line has been fairly successful,” Fish says.

Another unresolved issue is the relationship between VeriFone and Heartland Payment Systems Inc., a Princeton, N.J.-based payment processor that developed its own POS terminal.

Heartland had been working with VeriFone on the terminal, but the deal went bad in 2009 when VeriFone alleged Heartland’s work infringed on its patents and Heartland claimed VeriFone undertook unfair trade practices (see story). Heartland later began working with Hypercom on payment-security products (see story). 

Neither Heartland nor VeriFone would comment on the matter.

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