Visa Inc. nears $22 billion deal to buy Visa Europe – could be the biggest deal in the company’s history

The Foster City, Calif.-based payments network is in advanced negotiations to buy its European counterpart—Visa Europe—for about $22 billion in a deal that would unite Visa’s global operations under one roof, according to people familiar with the matter quoted by The Wall Street Journal.

Visa Inc., which has held sporadic talks over the years with Visa Europe, said in recent months that it was moving ahead with negotiations and would try to finish the deal by the end of October. Analysts say that they expect a deal could be announced as soon as Monday when Visa releases its quarterly results.
Analysts are betting that both sides are motivated enough to close the transaction.

“This deal has come and gone many times, but it is hard to imagine, when they have come this far, what could happen to make either side walk away,” said Lisa Ellis, a payments analyst at Sanford C. Bernstein & Co. Ms. Ellis recently wrote that the deal will boost Visa’s estimated per-share earnings in 2017 by as much as 12%.

Large deals valued at $10 billion or more have been rare for financial companies since the 2008 crisis and basically unheard of among the big credit-card networks, Visa, MasterCard Inc., American Express Co. and Discover Financial Services. Visa’s largest acquisition was its $2 billion deal to buy Cybersource, a provider of security services to online merchants, in 2010.

The purchase could have widespread implications for both Visa and MasterCard in Europe, where payments systems remain relatively fragmented. Visa Inc.’s acquisition of Visa Europe is expected to serve as a trigger for both Visa and MasterCard to push European consumers and businesses toward electronic payments. It would also likely invigorate the longtime rivalry between the two companies as they court the business of thousands of European financial firms that now own a majority stake of Visa Europe, according to analysts.

“It’s pretty clear that the opportunities for MasterCard should outweigh any concerns” about enhanced competition from a unified Visa, said Darrin Peller, an analyst at Barclays Capital Inc.

A spokeswoman for Visa Inc. declined to comment on the timing of a deal.
“At this stage, there is no certainty about the outcome of those discussions, and Visa Europe remains focused on continuing to develop its business,” said a spokeswoman for Visa Europe.

MasterCard already operates as a unified company around the world, and sees opportunity in a Visa change. MasterCard Chief Executive Officer Ajay Banga said Thursday morning on an earnings call that a unified Visa “will change the competitive landscape,” but that the integration “will take some energy, effort and dedication.”

The proceeds from any sale would come in handy for some European banks, many of which are dealing with financial struggles or varying levels of restructuring. BarclaysPLC, the largest stakeholder in Visa Europe, stands to make more than £1 billion ($1.5 billion) in the deal, according to a person familiar with the planned transaction.

For years, Visa Inc. and Visa Europe operated under the same umbrella company called Visa International Service Association. That changed in 2007 when Visa’s U.S. operations began moving from a bank-owned cooperative to a publicly traded company.
Visa’s other operations around the world united under the name Visa Inc., but the European entity remained separate.

As part of its transition to a public company, Visa Inc. granted Visa Europe a put option that would force the U.S. entity to buy the European one in certain circumstances.
Analysts say Visa is well-positioned to buy its counterpart, helped by the strong U.S. dollar and the availability of cheap debt financing for any deal.
Analysts speculate that European financial firms ultimately will see higher rates once they no longer own the European Visa network. The financial firms pay the card networks for transactions.

Source: wsj.com