Daily Management Review

Visa to Buy Visa Europe for $ 23.3 Billion


Visa to Buy Visa Europe for $ 23.3 Billion
With the aim to cut costs over the long term and raise fees in the second-biggest card market, Visa Inc that it would buy former subsidiary Visa Europe Ltd for up to $23.3 billion in a deal that will give the world's largest payments network an extra edge.
While ending a period of strategic uncertainty that had dogged Visa in recent months, the price for the long-anticipated deal was higher than many had expected.
Until 20007, Visa Inc and Visa Europe, a cooperative of European banks with more than 500 million cards, were part of a global bank-owned network. After the bifurcation, apart from the Visa Europe which continued to function as a separate entity, most of the units merged to form Visa Inc which went public in 2008.
Cementing its lead over nearest-rival MasterCard Inc, the deal brings all of Visa's networks under one roof again.
Visa Europe had a 52.2 percent share of the European card market in 2013, by value of payments.
Based on revenue targets four years after the deal closes, Visa said it would pay 16.5 billion euros up front in cash and convertible preferred stock, with potential for an additional payment of up to 4.7 billion euros.
More than 3,000 companies stand to profit from the deal.
Bernstein analyst Chirantan Barua wrote in a note that Barclays Plc, the most active bank in the Visa Europe network, is likely to be the biggest gainer.
When the deal closes in 2016, Barclays said in a statement that it expected an after-tax profit of about 400 million pounds ($619 million). A person familiar with the matter said that the bank could receive up to 1.2 billion euros in total.
While payment services provider Worldpay Group Plc said it expected about 1.25 billion euros from the deal, including 592 million euros when the deal closes, Lloyds Banking Group Plc said it expected a pretax gain of about 300 million pounds when it closes.
With a 30 percent reduction from the current run rate, Visa said it was targeting savings of $200 million from the deal in 2020. Much of the savings will come from integration of technology.
Analysts are of the opinion that the charges that currently, Visa Europe charges the banks - its owners is likely to change. At present Visa Europe charges less than MasterCard.
"We will work with our banks, who formally were members, to come up with relationships that are more commercial than what you might have struck when you were dealing with an owner," Chief Financial Officer Vasant Prabhu told Reuters.
Chief Executive Charlie Scharf declined to disclose details on pricing in Europe on a call with analysts.
Many experts had expected the deal to be worth lower and analysts like Wedbush Securities analyst Gil Luria had expected a deal worth $20 billion-$21 billion.
Tormented by higher costs, Visa also reported a slightly lower-than-expected quarterly profit.
The deal is expected to be dilutive to full-year adjusted earnings in fiscal 2016, but accretive to revenue and earnings growth in 2017. It is expected to be partly funded by the issue of senior unsecured debt of up to $16 billion.