News that the American multinational company Visa Inc. is negotiating with the London office of Visa Europe about the purchase of its former subsidiary, leaked onto the Internet in the fall of this year - and by the end of October the first confirmation of their reality began to appear.
And finally, at the beginning of this month, representatives of Visa Inc. and Visa EU Ltd. announced the signing of the final agreement: the deal, estimated at €21.2 billion ($23.4 billion), took place. Its final stage is scheduled for the third quarter of 2016.
This transaction will be the largest event in the payment systems segment of the financial market over the past seven years. According to a financial correspondent for The Wall Street Journal, there have been very few truly large (exceeding $10 billion) transactions between financial companies since 2008, and none at all in this segment.
We at PayOnline, being an international processing company actively working with Visa cards, could not ignore this important event. And we bring to your attention the most complete overview of the deal and its participants.
Visa Europe Ltd. is an association of European banks and other service providers in the field of electronic payments (payment services), under a single management. Currently, Visa Europe (Visa EU) is the leader in payment transactions in Europe, with more than 3.7 thousand members from 36 countries. Each member of the association owns one share of the company. Board of Directors of Visa Europe Ltd. Consists of 22 representatives of leading European banks.
As of 2015, more than 500 million cards issued by Visa Europe are in service. Every year the company processes more than 18 billion transactions, the volume of payments for which the association is responsible exceeds €1.5 trillion. The company's profit in 2014 amounted to €219.8 million.
What is noteworthy is that until 2007, Visa and Visa Europe were part of the same structure, called the Visa International Service Association. In fact, Visa EU was previously a subsidiary of Visa Inc., but legally ceased to be such after a 2007 restructuring.
The restructuring, business combination and creation of a public company, Visa, was announced on October 11, 2006. A year later, the process was completed, the company shifted its position from a banking cooperation towards a public company. As a result of the restructuring, the Western branch of Visa did not become part of the updated Visa Inc., but became an independent organization Visa Europe Ltd.
And already on March 18, 2008, the IPO of Visa Inc. began. After the IPO in March of the crisis of 2008and the placement of the company's initial shares on the New York Stock Exchange, Visa Inc. acquired a large amount of funds, but formally by the start of the IPO it had already lost its European unit - Visa EU separated from the Visa International Service Association. Why formal? Because Visa Europe was a minority shareholder of Visa Inc. even before the takeover in November 2015. – that is, a shareholder with an insufficiently large block of shares to participate in the management of the company. And the international company Visa, in turn, received license payments (royalties) from the European payment system.
A significant role in the process of separating Visa EU, as well as in increasing the capital of Visa Inc. and the subsequent transaction, the same public IPO offer from March 2008 played a role.
And, of course, no company personally prepares a stock offering. In such cases, an underwriter is hired - an investment bank (one or more), which leads the process of preparation for the IPO. Typically, the price of shares offered, their type, and the total amount of funds raised are decided during negotiations between representatives of the hired bank and the company's management.
Why do financial giants like Visa need a complex process of releasing shares for widespread use?
First of all, an IPO is needed to raise funds, of course. If a company feels well enough on its feet to take a leap in growth, an IPO is a good way to invest in the company's growth. Visa Inc. made its move in March 2008 - at the height of the global crisis, when this step was undoubtedly risky, but led to unprecedented success at that time - the company sold its shares at a price one and a half times higher than expected and gained $ 17.9 billion , setting a new IPO record in the United States.
Apart from the profit from selling shares, there are other benefits of an IPO. Shares in large companies are often used as part of the payment for acquisitions or mergers. Shares of a promising or established company can be used to offer options and attract new employees and highly qualified specialists.
After all, getting listed on the NYSE or NASDAQ, the largest stock exchanges in the world, is a matter of prestige.
However, in the case of Visa Inc. the key factor was obtaining funds. Further development of the company led to the possibility of a transaction with the former subsidiary of Visa Europe Ltd.
During the period of “free floating” (period 2007-2015), Visa EU managed to develop great potential and find access to the markets of European countries, including Turkey and Poland, previously inaccessible to Visa Inc. – and at the moment these are one of the most dynamically growing markets, representing a promising field of play for representatives of payment services.
In addition, the accession of Visa EU provides another opportunity to gain an advantage over Visa's main competitor among international payment systems - MasterCard Worldwide.
The purchase of the European Banking Association for Visa was a high budget, but strategically correct step.
According to the terms of the deal, Visa Inc. must be paid in advance by 11.5 billion euros ($12.68 billion) in cash and preferred shares convertible into Class A common shares (a common share of a company that gives its owner the right to receive dividends but does not give him voting rights) on amounting to 5 billion euros ($5.51 billion).
For example, Charles Scharf, chief executive officer of Visa Inc. said: “We are thrilled to combine Visa into a single global company with unmatched technology and services. This transaction is beneficial for everyone - financial institutions, buyers, sellers, cardholders and other partners, for our employees and shareholders. The Visa EU team has done a great job of building a leading payment system that is respected and trusted throughout Europe. Together we will bring digital payments to many more people in more places in the world than ever before.”
This is a good move, as research has shown that 37% (or $3.3 trillion) of consumer spending in Europe is still paid for in cash. In the near future, analysts predict a steady increase in the use of mobile payments, thanks to the spread of convenient high-frequency wireless technology Near Field Communication and its application in payment systems. Visa Inc. aggressively introduces new mobile payment products and platforms. The company actively acquires and invites providers and service providers to cooperate in the mobile payment market, invests in opening innovation centers, provides support for new technologies - tokenization, digital wallets, etc. All this is obviously aimed at accelerating the growth of mobile payments in Europe.
Nicolas Goose, General Director of Visa Europe, agrees with this policy: “Integration will guarantee the financial strength and assets necessary to accelerate the implementation of new generation payment systems in Europe. This will enable us to offer world-class solutions to our clients and provide exciting career opportunities for our employees.”
Most likely, such an aggressive policy from Visa will intensify long-standing competition with MasterCard in European markets, where payment systems are still relatively fragmented. Competition is expected for partnership with thousands of European financial institutions that are shareholders of Visa Europe. "It's pretty clear that the potential opportunity should outweigh any concerns for MasterCard," said Barclays Capital analyst Darrin Peller. And any competition of this kind, as a rule, has positive aspects – both for the company’s clients and for the development of mobile payment services in general.
Also, the deal may turn out to be profitable for some Visa Europe shareholders. For example, the European bank Barclays, the largest shareholder of Visa Europe, could earn more than 1 billion pounds ($1.15 billion) as a result of the transaction.
The purchase of the European Visa will also directly affect its clients, who will receive wide access to the resources of Visa Inc. and to its investments in innovative technologies, products and services in the mobile payments industry.
In general, according to company representatives, integration is aimed at the growth and development of Visa, at improving the quality and speed of customer service, and at increasing the number of transactions. The takeover and transition of Visa EU from an association to a profit-seeking enterprise is positioned as an undoubted benefit - for both Visa clients and partners. Well, and, of course, for the company itself - otherwise, why would a deal worth $22 billion be needed?
In addition to the main amount, Visa Inc. specialists. they forecast expenditures of $150 million at a time on costs ensuring the transfer of ownership rights from one hand to another and the protection of these rights, including stamp duties for 2016. Accumulated costs associated with the integration are projected to be between $450 million and $500 million by the end of 2020.
This is Visa Inc.'s biggest financial move yet. in the field of purchasing and adding new companies to its strength since the end of 2010. It was then that a deal was concluded between Visa and CyberSource, a provider of electronic payment services. The 2010 takeover cost Visa Inc. $2 billion – $26 per share. The current agreement is much larger and its cost is an order of magnitude higher - but, predictably, the benefits from this deal are much larger and extend not only to profit in the near future, but also to the company’s far-reaching strategy.
And finally, at the beginning of this month, representatives of Visa Inc. and Visa EU Ltd. announced the signing of the final agreement: the deal, estimated at €21.2 billion ($23.4 billion), took place. Its final stage is scheduled for the third quarter of 2016.
This transaction will be the largest event in the payment systems segment of the financial market over the past seven years. According to a financial correspondent for The Wall Street Journal, there have been very few truly large (exceeding $10 billion) transactions between financial companies since 2008, and none at all in this segment.
We at PayOnline, being an international processing company actively working with Visa cards, could not ignore this important event. And we bring to your attention the most complete overview of the deal and its participants.
About the participants in the transaction
Visa Inc. is an American international company, a global system that provides its services for electronic payments in more than 200 countries around the world. Visa clients are individuals - cardholders, as well as merchants, financial and government institutions. Although Visa is not a bank and does not issue cards, provide loans, or set rates or fees, Visa provides its customers with the ability to transact financially through an electronic payment network around the world and plays a central role in developing innovative products. and payment system technologies. The speed (the VisaNet system is capable of processing more than 65,000 transactions per second) and security (the 3D Secure protocol and the Verified by Visa service based on it , for example) of the Visa systems largely contribute to the stable growth of the number of company clients. At the moment, Visa systems are used by more than 21 thousand companies around the globe, as for Visa cards - their number in service exceeds 2.1 billion. The company's market capitalization is about $192 billion. The share price is around $80.Visa Europe Ltd. is an association of European banks and other service providers in the field of electronic payments (payment services), under a single management. Currently, Visa Europe (Visa EU) is the leader in payment transactions in Europe, with more than 3.7 thousand members from 36 countries. Each member of the association owns one share of the company. Board of Directors of Visa Europe Ltd. Consists of 22 representatives of leading European banks.
As of 2015, more than 500 million cards issued by Visa Europe are in service. Every year the company processes more than 18 billion transactions, the volume of payments for which the association is responsible exceeds €1.5 trillion. The company's profit in 2014 amounted to €219.8 million.
What is noteworthy is that until 2007, Visa and Visa Europe were part of the same structure, called the Visa International Service Association. In fact, Visa EU was previously a subsidiary of Visa Inc., but legally ceased to be such after a 2007 restructuring.
The restructuring, business combination and creation of a public company, Visa, was announced on October 11, 2006. A year later, the process was completed, the company shifted its position from a banking cooperation towards a public company. As a result of the restructuring, the Western branch of Visa did not become part of the updated Visa Inc., but became an independent organization Visa Europe Ltd.
And already on March 18, 2008, the IPO of Visa Inc. began. After the IPO in March of the crisis of 2008and the placement of the company's initial shares on the New York Stock Exchange, Visa Inc. acquired a large amount of funds, but formally by the start of the IPO it had already lost its European unit - Visa EU separated from the Visa International Service Association. Why formal? Because Visa Europe was a minority shareholder of Visa Inc. even before the takeover in November 2015. – that is, a shareholder with an insufficiently large block of shares to participate in the management of the company. And the international company Visa, in turn, received license payments (royalties) from the European payment system.
A significant role in the process of separating Visa EU, as well as in increasing the capital of Visa Inc. and the subsequent transaction, the same public IPO offer from March 2008 played a role.
What is an IPO?
IPO - Initial Public Offering - is essentially an offer of shares of a company to the general public. Anyone can become a shareholder, and the company ceases to be private and becomes public. The IPO process costs the company time and money, the preparation of the initial public offering of shares is a fairly lengthy stage - it takes from several months to a year, and the funds that the company spends on this stage are quite significant. In addition, the requirements of regulatory authorities are changing due to the transition of a company from private to public.And, of course, no company personally prepares a stock offering. In such cases, an underwriter is hired - an investment bank (one or more), which leads the process of preparation for the IPO. Typically, the price of shares offered, their type, and the total amount of funds raised are decided during negotiations between representatives of the hired bank and the company's management.
Why do financial giants like Visa need a complex process of releasing shares for widespread use?
First of all, an IPO is needed to raise funds, of course. If a company feels well enough on its feet to take a leap in growth, an IPO is a good way to invest in the company's growth. Visa Inc. made its move in March 2008 - at the height of the global crisis, when this step was undoubtedly risky, but led to unprecedented success at that time - the company sold its shares at a price one and a half times higher than expected and gained $ 17.9 billion , setting a new IPO record in the United States.
Apart from the profit from selling shares, there are other benefits of an IPO. Shares in large companies are often used as part of the payment for acquisitions or mergers. Shares of a promising or established company can be used to offer options and attract new employees and highly qualified specialists.
After all, getting listed on the NYSE or NASDAQ, the largest stock exchanges in the world, is a matter of prestige.
However, in the case of Visa Inc. the key factor was obtaining funds. Further development of the company led to the possibility of a transaction with the former subsidiary of Visa Europe Ltd.
During the period of “free floating” (period 2007-2015), Visa EU managed to develop great potential and find access to the markets of European countries, including Turkey and Poland, previously inaccessible to Visa Inc. – and at the moment these are one of the most dynamically growing markets, representing a promising field of play for representatives of payment services.
In addition, the accession of Visa EU provides another opportunity to gain an advantage over Visa's main competitor among international payment systems - MasterCard Worldwide.
The purchase of the European Banking Association for Visa was a high budget, but strategically correct step.
Terms of a transaction
The deal was valued at 16.5 billion euros ($18.19 billion) in cash and securities, with a possible additional payment of up to 4.7 billion euros. The additional payment is calculated to be paid after four years, depending on the income plan. In total, the last announced price was 21.2 billion € ($23.4 billion).According to the terms of the deal, Visa Inc. must be paid in advance by 11.5 billion euros ($12.68 billion) in cash and preferred shares convertible into Class A common shares (a common share of a company that gives its owner the right to receive dividends but does not give him voting rights) on amounting to 5 billion euros ($5.51 billion).
Anticipated Consequences
Statements from representatives of companies involved in the purchase and sale process are, of course, full of optimism.For example, Charles Scharf, chief executive officer of Visa Inc. said: “We are thrilled to combine Visa into a single global company with unmatched technology and services. This transaction is beneficial for everyone - financial institutions, buyers, sellers, cardholders and other partners, for our employees and shareholders. The Visa EU team has done a great job of building a leading payment system that is respected and trusted throughout Europe. Together we will bring digital payments to many more people in more places in the world than ever before.”
This is a good move, as research has shown that 37% (or $3.3 trillion) of consumer spending in Europe is still paid for in cash. In the near future, analysts predict a steady increase in the use of mobile payments, thanks to the spread of convenient high-frequency wireless technology Near Field Communication and its application in payment systems. Visa Inc. aggressively introduces new mobile payment products and platforms. The company actively acquires and invites providers and service providers to cooperate in the mobile payment market, invests in opening innovation centers, provides support for new technologies - tokenization, digital wallets, etc. All this is obviously aimed at accelerating the growth of mobile payments in Europe.
Nicolas Goose, General Director of Visa Europe, agrees with this policy: “Integration will guarantee the financial strength and assets necessary to accelerate the implementation of new generation payment systems in Europe. This will enable us to offer world-class solutions to our clients and provide exciting career opportunities for our employees.”
Most likely, such an aggressive policy from Visa will intensify long-standing competition with MasterCard in European markets, where payment systems are still relatively fragmented. Competition is expected for partnership with thousands of European financial institutions that are shareholders of Visa Europe. "It's pretty clear that the potential opportunity should outweigh any concerns for MasterCard," said Barclays Capital analyst Darrin Peller. And any competition of this kind, as a rule, has positive aspects – both for the company’s clients and for the development of mobile payment services in general.
Also, the deal may turn out to be profitable for some Visa Europe shareholders. For example, the European bank Barclays, the largest shareholder of Visa Europe, could earn more than 1 billion pounds ($1.15 billion) as a result of the transaction.
The purchase of the European Visa will also directly affect its clients, who will receive wide access to the resources of Visa Inc. and to its investments in innovative technologies, products and services in the mobile payments industry.
In general, according to company representatives, integration is aimed at the growth and development of Visa, at improving the quality and speed of customer service, and at increasing the number of transactions. The takeover and transition of Visa EU from an association to a profit-seeking enterprise is positioned as an undoubted benefit - for both Visa clients and partners. Well, and, of course, for the company itself - otherwise, why would a deal worth $22 billion be needed?
In addition to the main amount, Visa Inc. specialists. they forecast expenditures of $150 million at a time on costs ensuring the transfer of ownership rights from one hand to another and the protection of these rights, including stamp duties for 2016. Accumulated costs associated with the integration are projected to be between $450 million and $500 million by the end of 2020.
This is Visa Inc.'s biggest financial move yet. in the field of purchasing and adding new companies to its strength since the end of 2010. It was then that a deal was concluded between Visa and CyberSource, a provider of electronic payment services. The 2010 takeover cost Visa Inc. $2 billion – $26 per share. The current agreement is much larger and its cost is an order of magnitude higher - but, predictably, the benefits from this deal are much larger and extend not only to profit in the near future, but also to the company’s far-reaching strategy.
