UK banks inline for a £2 billion windfall after US giant Visa agrees to buy Visa Europe
Today, 2 November 2015, Visa Inc. confirmed it is to acquire Visa Europe, creating a single global company after years of speculation about when Visa Inc. would swoop for the European group. Both companies’ boards were unanimous in their support of the transaction which is expected to be valued at around £15 billion, a figure higher than expected which would be subject to regulatory approvals.
Visa Europe, an association owned and operated by member banks and other payment service providers has operated separately from the US group since 2004, but analysts said the deal will boost the scale of the business as the industry prepares to expand contactless payments and other services. At the end of 2015, there were more than 500 million Visa cards issued across Europe, with more than €1.5 trillion in payments volumes, over 18 billion transactions annually with approximately 3,000 financial institutions partners in 38 countries.
UK banks set for a windfall are; Barclays, Lloyds, RBS and HSBC who combined could net well over £1billion from the sale, while the newly listed technology giant Worldpay is expected to receive up to £900million. Barclays who handles 10 per cent of Visa Europe’s payments – the largest volume of any UK bank could eventually receive more than £1.3 billion from the deal.
Visa Inc. CEO, Charles W. Scharf, said in a statement: “We are very excited about unifying Visa into a single global company with unmatched scale, technology and services. This transaction is beneficial for financial institutions, acquirers, merchants, cardholders, and other partners, as well as for our employees and shareholders.
“The Visa Europe team has done a tremendous job building a leading payments system that is trusted and respected across Europe, and together we will bring the power of electronic payments to more people, in more places, than ever before. Visa is a great global brand with a proud history and exciting future. Visa Europe has delivered impressive results over recent years and the Board believes that it is the right time to reunite these two very healthy businesses under common management.
“The deal will unlock significant value for members both through the consideration paid and because the Board believes a combined Visa will be better positioned to serve the needs of customers going forward. We are confident that Visa Inc. is committed to long term investment and development of the European business,” said Gary Hoffman, Chairman of the Visa Europe Board.”
Nicolas Huss, CEO Visa Europe added: “Integrating into one global business will ensure we have the financial strength and operational scale necessary to accelerate the next generation of payments throughout Europe. This will enable us to deliver world class solutions to our clients and open up exciting professional opportunities for our employees.”
Scharf commenting on the two businesses integrating after a seven year split said: “We look forward to the new integrated Visa, and we are fully committed to ensuring our efforts in Europe are tailored to meet local market needs. This includes being responsive to the evolving regulatory landscape, maintaining a European data center, and partnering with Europe’s growing payments ecosystem to co-develop locally-relevant products, services and experiences. This combination strengthens our payments system in Europe, as together we have even greater financial resources to invest in technology assets. Finally, we will continue to have a strong local management team in Europe, with London remaining as headquarters for the region.”
Concerns have already been raised about the deal which could result in cardholders and merchants being charged higher fees to use the Visa brand. Prior to any deal going through Visa Europe charges the banks – its current owners – fees which are less than MasterCard, but analysts expect this to change resulting in higher fees.
Chirantan Barua an analyst at Bernstein stated: ‘ Visa may try to raise its fees at the expense of the banks, which could eventually pass these new costs on to customers. 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,’
Barua concluded: ‘Now that the banks will be “external” to the payment system they 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.’
The deal will comprise £8.2billion of cash and £3.6billion in shares paid by Visa and is due to close in the third quarter of next year. Four years after the deal completes the banks could receive another payout of more than £3.3billion if sales targets are met.
Worldpay, which floated in London in October, will pass 90 per cent of the profit from the sale to its previous owners – private equity investors Bain Capital and Advent International – as part of the pre-arranged deal ahead of Worldpay’s float, with the remainder going to the company. rice last month.
Despite fears the deal will see some users move to rivals, Worldpay confirmed it will continue to be part of the Visa payments system. Visa’s profit jumped more than 40 per cent to £970million in the three months to the end of September. It said it expected to make £130m of savings from the deal in 2020 – largely from technology and systems – a 30pc cut in costs.
The transaction is expected to close in Visa Inc.’s fiscal third quarter of 2016.