Visa to buy out Visa Europe for €21.2bn

Visa, the world’s largest payments network, yesterday said it struck a deal to acquire Visa Europe in a transaction valued at as much as €21.2bn to unify the brand globally after eight years as separate companies.

The transaction includes a €16.5bn upfront consideration and the potential for an additional €4.7bn payable following the fourth anniversary of the completion of the deal, the companies said.

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.

California-based Visa relies more on the US, which accounted for 54% of revenue in fiscal 2014, compared with 39% 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 Charlie Scharf said.

Visa also reported that fiscal fourth-quarter profit increased 41% to $1.51bn (€1.37bn), or 62c a share, from $1.07bn, or 43c, a year previously, when it took on a $283m charge for litigation expenses.

Adjusted profit, which excludes some one-time items, was 62c a share, missing the 63c an average estimate of 32 analysts in a survey.

The company also announced a new $5 billion share repurchase programme.

The deal could boost earnings by as much as 5%, according to estimates from Donald Fandetti, a Citigroup analyst.

Sanford C Bernstein’s Lisa Ellis estimated that a $20bn transaction could increase 2018 profit by as much as 12%.

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, Sanford C Bernstein’s Ellis said.

Visa Europe, which has a licensing agreement with Visa, managed more than 500m accounts and processed more than 16bn transactions last year, according to its annual report.

It earned €219.8m in 2014, up 29% from a year earlier.