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American Express to buy St. Petersburg's Revolution Money for $300M

American Express announced Wednesday that it was buying St. Petersburg-based startup Revolution Money for $300 million, a deal scheduled to close early next year.

If you believe the principals in the soon-to-merge companies, the $28 billion behemoth and the St. Petersburg revolutionary will soon make beautiful music — and boatloads of money — together.

In its four years of existence, Revolution Money, in St. Petersburg's Bank of America tower, has focused mostly on getting its technology running and expanding to 1 million the companies that accept its payment platform.

What it lacked was marketing muscle and an established brand.

Enter American Express, the 150-year-old company as familiar and seemingly safe as the brown leather chair in your father's den. As Revolution chairman and majority shareholder Ted Leonsis pointed out Wednesday, the union will give the younger company instant clout.

Revolution Money operates both a digital money transfer business like eBay's PayPal and a low-fee credit/debit card.

"It really does make us look like we're a much more established, safer place for you to be storing your electronic funds," Leonsis said during a conference call to announce the deal.

American Express chairman Ken Chenault assured Revolution employees that their base of operations will remain in St. Petersburg. Chenault called the deal a "small acquisition" with "big potential." Revolution employs more than 100.

Jason Hogg, president and chief executive of Revolution Money, will continue in those roles. In 2007, Hogg raised the startup to new heights by attracting venture capital from America Online founder Steve Case.

"American Express wants us to be innovative," Leonsis said. It "doesn't want to change what the company has built."

Unlike PayPal, which takes a percentage off the top of money transfers, Revolution Money charges nothing when people holding its accounts shift money. That could change under the aegis of American Express, Leonsis suggested.

"We would never have the opportunity to charge a fee as Revolution Money," he said. "People didn't trust us enough, we weren't established enough."

The acquisition allows American Express "to go into new markets with a lower-cost product without compromising the premium image associated with American Express-branded cards," said Janney Capital Markets analyst Thomas McCrohan.

Revolution Money's products face a "chicken-or-egg" problem in which merchants wish to see broad consumer acceptance of the cards before they accept them for transactions, and vice versa, McCrohan said.

Chenault said his company's initial focus will be spreading Revolution Money's offerings across the United States, with eventual hopes of taking them overseas.

A key objective will include introducing existing American Express customers to alternative payment systems, rather than having them go outside the company's payment network.

Times wires were used in this report.

American Express to buy St. Petersburg's Revolution Money for $300M 11/18/09 [Last modified: Wednesday, November 18, 2009 11:59pm]
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