Visa Inc (V.N) said on Monday it would buy former subsidiary Visa Europe Ltd for up to $23.3 billion in a deal that will give the world’s largest payments network a chance to cut costs over the long term and raise fees in the second-biggest card market.
The price for the long-anticipated deal was higher than many had expected, but ended a period of strategic uncertainty that had dogged Visa in recent months.
Visa Inc and Visa Europe, a cooperative of European banks with more than 500 million cards, were part of a global bank-owned network until 2007.
Most of the units merged to form Visa Inc, which went public in 2008, leaving Visa Europe as a separate entity.
The deal brings all of Visa’s networks under one roof again, cementing its lead over nearest-rival MasterCard Inc (MA.N).
By value of payments, Visa Europe had a 52.2 percent share of the European card market in 2013. (bit.ly/1HVUjqe)
Visa said it would pay 16.5 billion euros up front in cash and convertible preferred stock, with potential for an additional payment of up to 4.7 billion euros based on revenue targets four years after the deal closes.
More than 3,000 companies stand to profit from the deal.
Barclays Plc (BARC.L), the most active bank in the Visa Europe network, is likely to be the biggest winner, Bernstein analyst Chirantan Barua wrote in a note.
Barclays said in a statement that it expected an after-tax profit of about 400 million pounds ($619 million) next year when the deal closes.
The bank could receive up to 1.2 billion euros in total, a person familiar with the matter said.
Lloyds Banking Group Plc (LLOY.L) said it expected a pretax gain of about 300 million pounds when the deal closes, while payment services provider Worldpay Group Plc (WPG.L) said it expected about 1.25 billion euros from the deal, including 592 million euros when it closes.
Visa said it was targeting savings of $200 million from the deal in 2020, a 30 percent reduction from the current run rate. Much of the savings will come from integration of technology.
Currently, Visa Europe charges the banks – its owners – less than MasterCard. That is likely to change, analysts said.
“We will work with our banks, who formally were members, to come up with relationships that are more commercial than what you might have struck when you were dealing with an owner,” Chief Financial Officer Vasant Prabhu told Reuters.
Chief Executive Charlie Scharf declined to disclose details on pricing in Europe on a call with analysts.
Wedbush Securities analyst Gil Luria was among those who had expected Visa to pay a lower price. Luria and others had expected a deal worth $20 billion-$21 billion.
Visa, whose shares were down 3.4 percent at $74.98 in afternoon trading, also reported a slightly lower-than-expected quarterly profit, due mainly to higher costs.
The deal, which will be partly funded by the issue of senior unsecured debt of up to $16 billion, is expected to be dilutive to full-year adjusted earnings in fiscal 2016, but accretive to revenue and earnings growth in 2017.
Visa said it would increase a buyback program by $5 billion for Class A common stock in 2016 and 2017 to offset the effects of issuing the preferred stock.
Visa said its fourth-quarter net income jumped about 41 percent to $1.51 billion, or 62 cents per diluted class A share, in the three months ended Sept. 30, just short of the average analyst estimate of 63 cents, according to Thomson Reuters I/B/E/S.
UBS and Morgan Stanley advised Visa Europe, while Goldman Sachs and JPMorgan advised Visa Inc on the deal.
($1 = 0.6466 pounds)
($1 = 0.9082 euros)