Monday , December 9, 2019

Weeks After Fiserv’s Bid for First Data, FIS Puts up $43 Billion to Snap up Worldpay

The other shoe has dropped.

Fidelity National Information Services Inc.’s $43-billion cash-and-stock deal to acquire Worldpay Inc., announced early Monday, will create a processing behemoth that will compete globally across a sweeping range of payments businesses, including merchant acquiring, e-commerce, faster payments, and core processing. And though the bosses of the two companies won’t admit it, the deal also represents the payments industry’s first significant answer to Fiserv Inc.’s $22-billion offer to buy First Data Corp., announced just two months ago.

Upon closing, which the companies expect in the second half of the year, the combined entity will be based in Jacksonville, Fla., FIS’s headquarters city, and will boast more than $12 billion in revenue, based on 2018 numbers for both FIS and Cincinnati-based Worldpay. Gary Norcross, FIS’s chairman, chief executive, and president will serve in the same roles at the new FIS. Worldpay executive chairman and CEO Charles Drucker will serve as executive vice chairman.

Norcross: “We want to make sure we have scale to compete not only now but in the future.” (Image credit: FIS)

The deal comes as the payments industry strives to keep up with technological transformation in merchant acquiring while seeking new revenue streams in e-commerce, mobile payments. and real-time settlement. Companies are turning to acquisitions, including blockbuster deals, to cement their positions and stay ahead of competitors’ technological capabilities. Norcross and Drucker, indeed, were at pains Monday to stress the decision to merge was based on industrywide technology trends rather than on a need to react to the pending linkup of Fiserv, a keen rival of FIS, and First Data, a potent competitor to Worldpay.

“This is purely a strategic combination,” Norcross told equity analysts in a teleconference held early Monday to discuss the deal. “We can’t speak to what other combinations are occurring in the industry. We want to make sure we have scale to compete not only now but in the future.”

Drucker echoed Norcross’s stress on the need for heft to develop and build out innovation, rather than a compulsion to counter competitors’ moves. “This [deal] is all about an offensive deal and going to where the growth is,” he said during the call.

To be sure, if the deal clears shareholder and regulatory hurdles, it will create a powerhouse in a wide range of established and developing payments markets. FIS not only competes with Fiserv in core processing for banks but also, like Fiserv, operates a major debit card network, NYCE. It also handles card-issuing duties on behalf of bank clients and processes real-time payments in 19 countries. Worldpay (formerly Vantiv Inc.), which is in the process of digesting its early 2018 acquisition of the United Kingdom-based acquirer Worldpay plc, brings strengths as a major acquiring processor.

“Back to the future as the industry stitches issuers and acquirers back together,” Patricia Hewitt, principal at Savannah, Ga.-based PG Research & Advisory Services, says in reaction to Monday’s news. “An important element of this is also having a global presence as geographic boundaries continue to blur.”

Even so, some observers were taken aback by Worldpay’s decision to sell and FIS’s choice of target. “We are surprised that the company is choosing to sell now ahead of realizing the full cost (about half left) and revenue synergies ($100 [million] run-rate exiting 2020) from the Vantiv/ Worldpay combination. We would have expected other players in the space like [Total System Services Inc.] to have been more strategically compelling for FIS given their card-issuer processing business,” said a research note issued by Keefe, Bruyette & Woods ahead of the conference call.

Drucker, however, indirectly addressed this point during Monday morning’s call. “I feel we were in a good spot [to do this deal],” he said. “Our message is always around growth.” For FIS’s part, the deal for Worldpay is all about competitive muscle. “The need to drive scale is going to matter in order to compete in the future,” Norcross said.

The two companies are projecting total revenue gains and cost savings of $250 million after the first year of the merger, $500 million cumulatively after the second, and $700 million cumulatively after the third. FIS shareholders will own 53% of the combined company, with Worldpay’s shareholders holding 47%. The $43 billion valuation encompasses Worldpay debt that FIS expects to refinance.

But much else remains to be nailed down before closing. “We’ve got a lot of work to between signing and close,” Norcross said.

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