Visa agrees to buy Visa Europe for as much as US$23.4b

NOV 2, 20157:31 PM

[WASHINGTON] Visa, the world's largest payments network, agreed to acquire Visa Europe Ltd. in a deal valued at as much as 21.2 billion euros (S$32.8 billion) to unify the brand globally after eight years as separate companies.

The transaction includes a 16.5 billion-euro upfront consideration, the companies 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 Inc, 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.

Visa Europe, owned by more than 3,000 European banks, has a put option that would force a sale to its former parent. Visa, led Chief Executive Officer Charlie Scharf, has valued the option at more than US$15 billion, and Bloomberg reported in May that the US payments network was in preliminary talks to buy its former subsidiary for as much as US$20 billion.

The deal could boost earnings by as much as 5 per cent, according to estimates from Donald Fandetti, a Citigroup Inc analyst. Sanford C Bernstein & Co's Lisa Ellis estimated a US$20 billion transaction could increase 2018 profit by as much as 12 per cent.

A combination also may bring short-term risks to Visa and benefit MasterCard, according to analysts including Chris Hickey of Atlantic Equities. Visa probably will raise prices after a deal is completed and it could be disruptive as the US company integrates operations with its European counterpart, Mr Hickey said before the deal was announced. MasterCard also stands to gain market share by picking up business from European banks that were previously tied to Visa, Bernstein's Ms Ellis said.

Visa Europe, which has a licensing agreement with Visa Inc, managed more than 500 million accounts and processed more than 16 billion transactions last year, according to its annual report. It earned 219.8 million euros in 2014, up 29 per cent from a year earlier.

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