Business ISP, PSINet Inc is paying $720m in cash and stock for Transaction Network Services Inc, a company that provides backbone networks for a variety of financial transactions. The deal comprises $351m in cash and up to 7.8 million PSINet shares, or $22.50 cash plus half a PSINet share for each TNI share. Shareholders can elect to receive cash or stocks, or a mix and it represents a premium of 32% over TNI’s closing price on Friday.

TNI, as it likes to be known, has an X.25 data transport network that is used by credit card processors that links merchants with the processor’s data centers. It also has a couple of IP networks that are used for messaging in the securities and option trading business and an SS7 (Signaling System 7) network that is used for credit card fraud control and validation, as well as being used internally by the company, which then converts it to IP.

It operates in the US, UK, Sweden, France, Japan and Australia. However, its home base of Reston, Virginia is very close to PSINet’s Herndon, Virginia base, both of them being towns just outside the beltway surrounding Washington, DC. As John McDonnell, TNI founder, president and CEO put it, the best- looking girl at the dance was right around the corner. PSINet had apparently been looking around for a financial transaction network partner for a while.

TNI claims to have a 70% market share in the US and does around 20 million transactions a day for about two million customers, which are mostly banks, stock exchanges, credit card processors, telecommunications companies and application software vendors. Last year the company acquired AT&T Corp’s transaction access service network, which greatly boosted its point-of-sale network presence.

PSINet’s goal is to bundle TNI’s services with its own and offer its business ISP services to companies that might also use, or already do use, TNI. And conversely, existing PSINet customers will be encouraged to use TNI’s networks for all sorts of financial transactions if they don’t do so already. PSINet can also offer TNI a strong international base from which to sell its transaction services and access to networks that it does not already have. Savings will also come from switching some of TNI’s networks over to those of PSINet.

PSINet says TNI will add about $200m to its top line in fiscal 2000, taking its current revenue estimate for next year to between $900m and $1.0bn, and it will add about $60m to its EBITDA line, taking that to between $150m and $170m. The acquisition is expected to close in the fourth quarter and there are no plans for job losses at this stage, with the combined company having about 2,800 employees in 21 countries.

The aim is to maintain the cash and stock mix at a 50-50 split and so the deal may be re-pro-rated to maintain the split, depending on what TNI shareholders elect to do. PSINet needs the stock element to maintain it as a tax-free transaction. TNI finished the day up $9.00, or 26.3% at $43.75, while PSINet closed yesterday up, $0.3125, or 0.7% at $45.875.