April 3 (Bloomberg) -- Marshall & Ilsley Corp., Wisconsin's biggest bank, said it will spin off its Metavante payment- processing unit into a business valued at about $4.25 billion with help from private-equity firm Warburg Pincus LLC.

Warburg Pincus will pay $625 million for a 25 percent stake in Metavante, Milwaukee-based M&I said today in a statement. M&I shareholders, which will own the remaining 75 percent, will get one share of Metavante for every three shares held in the parent company. Metavante's value includes $1.75 billion in new debt.

Metavante accounted for about a fifth of M&I's profit last year. The company has been looking for an opportunity to separate the business to focus on expanding retail banking, said Raymond James analyst Bradley Vander Ploeg. Yesterday, buyout firm Kohlberg Kravis Roberts & Co. agreed to buy First Data Corp., the world's largest processor of credit-card payments.

``Private-equity firms are clearly looking at this space right now because of the payment processors' ability to generate consistent cash flows,'' Vander Ploeg said. ``So the stars kind of aligned to make this work.''

The agreement includes a capital infusion for M&I of about $1.67 billion to help ``grow its business,'' the company said. M&I, with $56.2 billion in assets, has 193 offices in Wisconsin, in addition to locations in Missouri, Arizona, Kansas, Minnesota, Nevada, Florida and Oklahoma.

``If you can stay at the hub of payments, that's an attractive area,'' said David Coulter, a managing director and head of the financial services practice at Warburg Pincus who worked on the transaction. ``There are opportunities to use capital to continue to consolidate and grow this business.''

Same Management

Metavante runs technology systems for check processing and electronic payments for more than 8,600 clients. It will have about 5,500 employees and Frank Martire will continue as its president and chief executive officer. M&I Chairman and CEO Dennis Kuester will serve as one of 11 Metavante board members.

``As a result of this transaction, both companies will have additional opportunities to focus on core businesses and grow profitably through enhanced capital flexibility,'' Kuester said in the statement.

The new Metavante debt will be arranged by JPMorgan Chase & Co. and Morgan Stanley. The companies said they expect the transaction to be completed in the fourth quarter.

M&I shares climbed $3.97, or 8.7 percent, to $49.83 in New York Stock Exchange composite trading today, after the Wall Street Journal reported the planned spinoff. The announcement was made after the close of trading.

To contact the reporter on this story: Will Edwards in New York at wiedwards@bloomberg.net.

Last Updated: April 3, 2007 19:39 EDT