Worldpay discovered on Wednesday that a couple of birds in the bush are sometimes worth a bit more than one in the hand.
A day after Worldpay, Britain’s biggest payment processor, said it had been approached by both Vantiv and JPMorgan Chase, the company agreed in principle to Vantiv’s offer of nearly $10 billion in a mix of cash and shares. That took the shine off the share price of both the buyer and its target, perhaps because the deal makes sense only with some very charitable assumptions.
If the acquisition goes ahead, Worldpay investors will receive 55 pence, about 70 cents, for each share they own, as well as 0.0672 in new Vantiv shares. The total package is worth a fifth more than Worldpay’s June 30 closing price of just under 315 pence, a little over $4, and means that investors in Worldpay will own roughly 41 percent of the larger group. That’s decent but not quite as lofty as an offer of 450 pence, about $5.80, a share that several analysts said might be in the offing.
That’s probably just as well from Vantiv’s point of view. Worldpay says the two boards have identified substantial potential savings, but neither side has yet to produce any estimates. But to justify a premium of around $1.6 billion, they would need to make roughly $225 million in pretax cost savings per year, according to a Reuters Breakingviews calculation. Eliminating duplicated costs in the United States will no doubt play a central role, but even so the goal appears ambitious.
There are a couple of other niggling concerns.
One is why JPMorgan decided not to bid. Another is that Vantiv’s chief executive, Charles Drucker, and his Worldpay peer, Philip Jansen, will jointly run the company. Such setups can be a recipe for conflicts and muddled visions. However, neither is as worrying as investors’ knee-jerk reaction to the deal.
Vantiv shares fell as much as 5 percent from their previous close, before recovering slightly later. The less enthusiastic that Vantiv investors are about the deal, the less appealing it becomes for those who own its British peer.
Source: The New York Times
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