Visa to buy European arm in €21.2bn deal

Visa Inc., the world’s largest payments network, agreed to acquire Visa Europe Ltd. in a deal valued at as much as €21.2 billion to unify the brand globally after eight years as separate companies. The transaction includes €16.5 billion upfront and as much as €4.7 billion more after the fourth anniversary of the deal’s completion, the firms said Monday in a statement.

The purchase ends years of speculation among analysts about whether the companies, which split in 2007 ahead of the US firm's initial public offering, would reunite. The lack of meaningful contributions to earnings from Europe has long been seen as a weakness for Visa and an advantage for smaller competitor MasterCard, which owns its European business.

Foster City, California-based Visa relies more on the US, which accounted for 54 per cent of revenue in fiscal 2014, compared with 39 per cent for MasterCard.

Debt issuance

“This transaction is beneficial for financial institutions, acquirers, merchants, cardholders, and other partners, as well as for our employees and shareholders,” Chief Executive Officer Charlie Scharf, 50, said in the statement.

Visa plans to issue $15 billion to $16 billion in debt to help fund the deal, which is expected to be completed in the fiscal third quarter that ends June 30, according to the statement. The acquisition, which is subject to regulatory approval, includes €11.5 billion f cash upfront and €5 billion of stock. The additional €4.7 billion payment is contingent on achieving net revenue goals in the 16 quarters following the deal’s completion.

Visa Europe is owned by more than 3,000 banks. Chirantan Barua, an analyst with Sanford C. Bernstein, said British lenders including Barclays, Royal Bank of Scotland Group and HSBC Holdings should initially benefit.

‘Free lunch’

“Although we see this as a positive in the short term for the UK banks as this represents a boost to capital, we do not see this as a free lunch,” Barau said in a note to clients. The British banks “will see their fee income margin start to be squeezed and we wouldn’t be surprised if Visa tried to increase the margins in Europe at the expense of the banks.”

Visa also reported that fiscal fourth-quarter profit rose 41 per cent to $1.51 billion, or 62 cents a share, from $1.07 billion, or 43 cents, a year earlier, when it took a $283 million charge for litigation expenses. The company also announced a new $5 billion share repurchase program.

Bloomberg