Vantiv's takeover of Worldpay, the UK payments processor, makes strategic sense. But will shareholders benefit? Alice Grhns reports.
"The global payments industry is growing and its champions must straddle the globe." That explains US market leader Vantiv Inc's $10.4bn takeover of Worldpay, its British counterpart, says Lionel Laurent on Bloomberg.com. A key prize for payments processors is the world e-commerce market, which will double to around $4trn between 2015 and 2020, according to McKinsey. The combined entity, also called Worldpay, will be "a one-stop shop of global, online and offline coverage", says Jim Armitage in the Evening Standard. Worldpay and Vantiv jointly process about $1.5trn of payments every year.
But is it a good deal for shareholders? There are few cost overlaps, says Laurent, and "the proposed co-CEO structure is awkward". The companies expect to eliminate an annual $200m a year of pretax costs within three years of the deal, while one-time restructuring and integration expenses are pegged at $330m. Meanwhile, we have yet to hear how much the prospects for revenue growth and cross-selling are worth. "A lot will need to go right for Vantiv to justify the price."
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Worldpay shareholders seem to have done well, says Liam Proud on Breakingviews. They had two gripes during preliminary discussions last month: the price, and the fact that much of the offer comprised US-listed shares, which UK-focused fund managers may not own. But the implied valuation of almost 19 times Worldpay's Ebitda earnings for the last 12 months "is hardly stingy", while the company will now seek a secondary listing in London, solving the second problem. Shareholders should be content to nod the deal through.
Oh please, says Alistair Osborne in The Times. Dig deeper, and "the only obvious improvement" on July's terms is thatWorldpay will now have five of the 13 directors, up from four in July. That's still only 38% of the board seats for a 43% stake. More broadly, "one simple fact" can't be wished away: "Britain's great fintech hope is getting taken out by a US rival" for a "skinny" premium. Worldpay is "probably the better company" too, given its strong position in e-commerce: it handles five billion transactions worldwide in this sector every year. It's a pity the superior Worldpay is "prey not predator". But it hardly helped that it became 14% cheaper after the Brexit vote thanks to sterling's slide against the greenback. Still, on the plus side, it gets to keep its name. "Not bad for a month's negotiations even if the alternative was the meaningless Vantiv."
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