Visa to buy European spin-off for more than $23 billion

November 2, 2015 08:55 AM

Visa Inc said on Monday it would buy former subsidiary Visa Europe Ltd in a deal valued at up to 21.2 billion euros ($23.34 billion), putting the company in a stronger position to compete with MasterCard Inc in Europe.

Visa Inc and Visa Europe, a cooperative of European banks with more than 500 million cards, were part of a global bank-owned network until 2007.

Most of the units merged to form Visa Inc, which went public in 2008, leaving Visa Europe as a separate entity.

Visa, the world's largest credit and debit card company, said it would pay 16.5 billion euros up front, with potential for an additional payment of up to 4.7 billion euros based on revenue targets four years after the close of the deal.

The upfront payment comprises 11.5 billion euros in cash and preferred stock convertible into Visa Inc class A common stock valued at 5 billion euros.

Visa Inc will issue senior unsecured debt worth $15 billion-$16 billion to fund the cash portion of the deal and increase a buyback program by $5 billion for Class A common stock in 2016 and 2017 to offset the effects of issuing the preferred stock.

The company, whose shares were down 2.7 % at $75.52 in premarket trading, also reported a slightly lower-than-expected fourth-quarter profit.

Visa Europe had a 52.2 % share of the European card market in 2013 in terms of value of payments, according to its website.

Barclays Plc is likely to be the biggest winner out of the deal. Lloyds Banking Group Plc, Royal Bank of Scotland Group Plc and HSBC are also expected to benefit, Bernstein analyst Chirantan Barua wrote.

Barua added, however, that it would not be surprising if Visa tried to boost fee margins at the expense of the banks, now that the banks are external to Visa's payment system.

BIG WINNERS

More than 3,000 companies stand to profit from the deal.

Barclays, the most active bank in the Visa Europe network, said it expected a post-tax profit of about 400 million pounds ($619 million) next year when the deal closes.

The British bank could receive up to 1.2 billion euros in total, a person familiar with the matter said.

Lloyds said it expected an up front pretax gain of about 300 million pounds after the deal's close, while payment services provider Worldpay Group Plc said it would get up to about 1.25 billion euros from the deal, including 592 million euros in cash up front.

Visa said its fourth-quarter net income jumped to $1.51 billion, or 62 cents per diluted class A share, in the three months ended Sept. 30, from $1.07 billion, or 43 cents per share, a year earlier.

Analysts on average had expected earnings of 63 cents per share per share, according to Thomson Reuters I/B/E/S.

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