Visa to buy sister firm in Europe
Deal may result in financial windfall for investor overseas banks
Payment processing giant Visa announced plans Monday to buy its sister company, Visa Europe, in a deal that could be worth more than US$23 billion and would consolidate all of Visa’s operations worldwide.
The deal would make the world’s largest payment processing company even larger. The two companies have more than 2.9 billion cards issued on its combined network, processing roughly 88 billion individual transactions a year.
“We are very excited about unifying Visa into a single global company with unmatched scale, technology and services,” said Charles Scharf, Visa’s chief executive officer, in a prepared statement.
Under the terms of the transaction, Visa will pay 11.5 billion euros (US$12.66 billion) in cash plus stock valued at about US$5.5 billion. Visa Europe shareholders would also earn an additional payment valued at nearly US$5.2 billion if certain revenue targets are met four years after the deal is closed, which is expected in mid-2016.
Visa plans to pay for the transaction through the issuance of US$15 billion to US$16 billion in new debt.
Visa and Visa Europe operated under one banner for years, but had to separate when Visa started its conversion from a co-operative owned by the banks into a publicly traded company. Visa Europe became independent of Visa in 2007 but Visa always continued to have a hand in the fate of Visa Europe through an option to buy Visa Europe under certain conditions. Visa became a publicly traded company in 2008.
“We still see Europe as a very attractive growth market. It will be the second-largest market for Visa once the merger is completed and there’s still a lot of cash and checks to go away,” Visa CFO Vasant Prabhu said in an interview.
Visa Europe operates in a similar structure that Visa used to before it went public. Visa Europe is collectively owned by approximately 3,000 banks and payment companies and has no public shareholders like Visa does. When Visa Europe is purchased, it should provide a notable financial windfall for the European banks who own it. British bank Barclays said Monday it expects to make a profit of 400 million British pounds (US$617.98 million) once the sale is completed.
The deal will finally give Visa meaningful exposure to Europe, which was considered a competitive disadvantage. Its rival MasterCard owns its European operations.
But the combined Visa business could face more regulatory scrutiny as the payment processing industry becomes even further consolidated under the banners of Visa, MasterCard and, to a much lesser extent, American Express.
Visa executives say they do not expect any significant regulatory issues with the merger, since Visa has no significant exposure to Europe at the moment and it isn’t buying a competitor.
For consumers, the merger of Visa and Visa Europe will not be a significant event. Even though consumers interact with Visa nearly every day when they swipe their credit or debit cards, customers don’t directly pay money to Visa to use the company’s network.
Visa’s announcement of a deal came as the company reported its fiscal fourth quarter and full year results that mostly met Wall Street’s expectations.
The company reported net income of US$1.51 billion for the period ending Sept. 30, up from US$1.07 billion in the same period a year ago. On a per-share basis, Visa earned US62 cents per A-class common share, versus US43 cents per A-class common share a year earlier
Global payment volume on Visa’s network, a key measure of the company’s business, rose 12 per cent to US$1.265 trillion in the quarter, when adjusted for currency fluctuations. Like MasterCard, Visa takes a small percentage of each debit or credit card transaction processed on its network as a fee. Credit and debit card volume in the U.S., Visa’s biggest single market, rose roughly 10 per cent from a year earlier.
For the full year, Visa earned US$6.33 billion compared with US$5.44 billion in the same period a year earlier on US$13.88 billion in operating revenue. Per share earnings were US$2.58 per share versus US$2.16 per share in 2014.
Visa Inc. shares are up 25 per cent over the past year.