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 euros ($23.4 billion) to unify the brand globally after eight years as separate companies.
The transaction includes a 16.5 billion-euro upfront consideration and the potential for an additional 4.7 billion euros payable following the fourth anniversary of the completion of the deal, 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 U.S. 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 U.S., which accounted for 54 percent of revenue in fiscal 2014, compared with 39 percent for MasterCard.
“This transaction is beneficial for financial institutions, acquirers, merchants, cardholders, and other partners, as well as for our employees and shareholders,” Chief Executive Office Charlie Scharf, 50, said in the statement.
Earnings Miss
Visa also reported that fiscal fourth-quarter profit rose 41 percent 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. Adjusted profit, which excludes some one-time items, was 62 cents a share, missing the 63-cent average estimate of 32 analysts surveyed by Bloomberg. The company also announced a new $5 billion share repurchase program.
The deal could boost earnings by as much as 5 percent, according to estimates from Donald Fandetti, a Citigroup Inc. analyst. Sanford C. Bernstein & Co.’s Lisa Ellis estimated a $20 billion transaction could increase 2018 profit by as much as 12 percent.
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 U.S. company integrates operations with its European counterpart, 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 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 percent from a year earlier.
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