Visa Inc. sees Visa Europe option now costing more than $10 billion

26 noiembrie 2014

Visa Inc says that it may have to find $10 billion to fund the acquisition of Visa Europe should European banks exercise their option to sell the business to its US counterpart. The $10 billion price tag has been floated by Visa Inc in an annual filing with regulators, with the company saying that it would need to access third-party financing to meet its obligations under the 285 days-notice period specified under the contracts.

In the SEC filing Visa says: „We have granted Visa Europe a put option, which Visa Europe can exercise at any time and which would require us to purchase all outstanding capital stock from Visa Europe’s members within 285 days. Given current economic conditions, the purchase price under the terms of the put option could likely be in excess of $10 billion dollars and we may need to obtain third-party financing in order to meet our obligation through the issuance of either debt or equity.”

While they share the same brand, Visa Europe and Visa Inc are separate entities, with the US business listed on the new York Stock Exchange. Visa Inc. has a call option to buy shares in the bank-owned European organisation, while Visa Europe’s members have a put option to sell them to Visa Inc.

Europe’s banks have held discussions over a possible sale of Visa Europe in the past, but have so far kept their powder dry. However, the promise of a potential $10 billion payday may entice them to once again look at their options.

Visa Inc is required to assess the fair value of the put option on the price of Visa Europe quarterly, an exercise which the company says „could adversely affect our ability to raise capital and increase any associated costs”.

In the annual filing, Visa Inc says an acquisition could also have an adverse impact on the company’s operations as it would have to act swiftly to integrate Visa Europe’s business and systems into its global operations.

„If we cannot do so quickly and cost-effectively, the integration could divert the time and resources of senior management and other key resources, disrupt our current operations and adversely affect our results of operations,” states the company. „In addition, we would become subject to any ongoing or future regulatory disputes as a result of EU regulations that govern the operations of Visa Europe. We may also be required to assume any ongoing or future litigation involving Visa Europe.”

Also, failure to maintain interoperability with Visa Europe’s systems could damage the business and global perception of the Visa brands.
In the same SEC filing it is mentioned that:„Visa Europe’s independent system operations could present challenges to our business due to increasing costs and difficulty in maintaining the interoperability of our respective systems. Any inconsistency in the payment processing services and products between Visa Europe and us could negatively affect account holders from Visa Europe using payment products in the countries we serve or our account holders using payment products in Visa Europe’s region. Failure to authorize, clear and settle inter-territory transactions quickly and accurately could harm our business and impair the global perception of our brands.

Seems like for Visa Inc. there are strong reasons to avoid rather than complete the aquisition of Visa Europe mainly because structural and organizational risks.
Company says: ”Visa Europe may hinder our ability to acquire new businesses or to operate them effectively in its region. If the acquired business has operations in Visa Europe’s region, Visa Europe may play a significant part in influencing our ongoing operational decisions and costs there. Finally, Visa Europe may undertake operational and litigation strategies, including, but not limited to, our ongoing litigation in the U.K. and our ongoing case with the European Commission, that may adversely impact our business and reputation globally.”

And there is more related to substantial costs that can have an negative impact on operations and net income.
„If Visa Europe makes us acquire all of its outstanding stock under its put option, we are likely to incur substantial costs and may suffer a material and adverse effect on our operations and net income.”

„If we acquire Visa Europe, we may also encounter difficulties in integrating Visa Europe’s business and systems into our existing operations. If we cannot do so quickly and cost-effectively, the integration could divert the time and resources of senior management and other key resources, disrupt our current operations and adversely affect our results of operations. In addition, we would become subject to any ongoing or future regulatory disputes as a result of EU regulations that govern the operations of Visa Europe. We may also be required to assume any ongoing or future litigation involving Visa Europe.”

Visa Europe is owned and operated by more than 3,700 European financial institutions.

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