News from the world of payment systems: Visa and Visa Eu - once again a single whole

News that the American multinational company Visa Inc. is negotiating with the London office of Visa Europe to purchase its once-affiliated company, leaked to the Internet this fall - and by the end of October, the first confirmations 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 a final agreement: a deal valued 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 segment of payment systems in the financial market over the past seven years. According to the correspondent of The Wall Street Journal in the field of finance , there have been very few truly large (more than $ 10 billion) transactions between financial companies since 2008, and there have been no transactions in this segment at all.
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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 transaction and its participants.

About participants in the transaction

Visa Inc. - American international company, a global system that provides its services for conducting electronic payments in more than 200 countries around the world. Visa customers are individuals - cardholders, as well as trade and service enterprises, financial and government institutions. Despite the fact that Visa is not a bank in essence and does not issue cards, does not provide loans and does not set rates and fees - it provides its customers with the opportunity to make financial transactions in the network of electronic payments around the world and plays a central role in the development of innovative products and payment system technologies. The speed (the VisaNet system is capable of processing more than 65,000 trancats per second) and security (the 3D Secure protocol and the Verified by Visa service based on its work, for example) of the Visa systems largely contribute to the steady growth in the number of company customers. Currently, Visa systems are used by more than 21,000 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. - It is an association of European banks and other electronic payment service providers (payment services) under single management. At the moment, Visa Europe (Visa EU) is the leader of payment operations in Europe, it includes more than 3.7 thousand participants from 36 countries. Each member of the association owns one share of the company. Board of Directors Visa Europe Ltd. It consists of 22 representatives of leading European banks.
In 2015, over 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.

Remarkably, until 2007, Visa and Visa Europe were part of the same structure, which was called the Visa International Service Association. In fact, Visa EU had previously been a subsidiary of Visa Inc., but legally ceased to be such after the restructuring of 2007.

The restructuring, merger of businesses and the creation of a public company Visa were announced on October 11, 2006. A year later, the process was completed, the company shifted its position from banking cooperation towards a public company. Following the restructuring, the western cell of Visa was not included in the updated Visa Inc., but became an independent organization Visa Europe Ltd.

And on March 18, 2008, the Visa Inc. IPO began. After the March 2008 crisis of IPO and the placement of the company's primary shares on the New York Stock Exchange, Visa Inc. acquired a large amount of funds, but formally by the beginning of the IPO had already lost its European cell - Visa EU separated from the Visa International Service Association. Why formally? Because Visa Europe was a minority shareholder of Visa Inc. before the takeover in November 2015. - that is, a shareholder with a not large enough stake to participate in the management of the company. And the international company Visa, in turn, received license payments (royalties) from the European payment system.

Significant role in the process of separation of Visa EU, as well as in increasing capital Visa Inc. and a follow-up transaction, played the very public IPO offer of March 2008.

What is an IPO?

IPO - Initial Public Offering - in fact, this is the offer of shares of a certain company to the general public. Anyone can become a shareholder, while this company ceases to be private and becomes public. The IPO process costs the company time and money, the preparation of the initial public offering is quite a long stage - it takes from several months to a year, and the funds that the company spends on this stage are quite substantial. In addition, regulatory requirements are changing from moving a company from private to public.

And, of course, no company is personally preparing the offer of shares. In such cases, an underwriter is hired - an investment bank (one or more) that leads the process of preparing for an IPO. Typically, the price of the proposed shares, their type, and the total amount of funds raised are decided during negotiations between representatives of the hired bank and the management of the company.

Why do we need a complicated process of bringing shares into widespread consumption by such financial giants as Visa?

First of all, an IPO is needed to raise funds, of course. If a company feels strong enough to be on its feet for development, an IPO becomes a good way to invest in the growth of a company. Visa Inc. made its move in March 2008 - at the height of the global crisis, when this step was undoubtedly risky, but led to an unprecedented success at that time - the company sold its shares at a price one and a half times higher than expected and earned $ 17.9 billion by setting a new IPO record in the USA .

In addition to the profits from the sale of shares, there are other benefits from the IPO. Shares of large companies are often used as part of payment when entering into takeovers or mergers. Promotions of a promising or already established company can be used to offer an option and attract new employees and highly qualified specialists.

In the end, getting listed on the NYSE or NASDAQ - the world's largest exchanges - is a matter of prestige.

However, in the case of Visa Inc. a key factor was the receipt of funds. Further development of the company and led to the possibility of a deal with the formerly a subsidiary of Visa Europe Ltd.

During the period of “free navigation” (period 2007-2015), Visa EU managed to build up great potential and find access to the markets of European countries, including Turkey and Poland, previously unavailable to Visa Inc. - and at the moment it is one of the most dynamically growing markets, representing a promising field of the game 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 .

Buying a European banking association for Visa was a high-budget, but strategically right step.

Terms of a transaction

The amount of the transaction amounted to 16.5 billion euros ($ 18.19 billion) in cash and securities, with a possible additional payment of up to 4.7 billion euros. Additional payment is calculated on payment after four years, depending on the plan for income. Total, the last announced price of steel was 21.2 billion € ($ 23.4 billion).

Under the terms of the deal, Visa Inc. 11.5 billion euros ($ 12.68 billion) of cash and preferred shares convertible into Class A ordinary shares (a common stock of a company that gives its owner the right to receive dividends, but does not give him the right to vote) on worth 5 billion euros ($ 5.51 billion).

Anticipated consequences

Statements by representatives of companies engaged in the process of buying and selling, of course, are full of optimism.

For example, Charles Scharf, chief executive officer of Visa Inc. He said: “We are very pleased to merge Visa into a single global company with an unsurpassed level of 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 tremendous job building a leading payment system that is respected and trusted throughout Europe. Together, we will bring electronic payments to far more people in more places in the world than ever. ”

The desire is correct, because, as research has shown, 37% (or $ 3.3 trillion) of consumer spending in Europe is still paid in cash. In the near future, analysts predict a steady increase in the use of mobile payments, thanks to the proliferation of convenient wireless high-frequency communication technology Near Field Communication and its use in payment systems. Visa Inc. aggressively introducing new mobile payment products and platforms. The company actively acquires and invites service providers and service providers in the mobile payments market, invests in the opening of innovation centers, provides support for new technologies - tokenization, digital wallets, etc. All this is obviously aimed at accelerating the growth of the popularity of mobile payments in Europe.

Nicola Gus, Director General of Visa Europe, agrees with this policy: “Integration will guarantee the financial strength and assets necessary to accelerate the introduction of new generation payment systems in Europe. This will allow us to offer our customers world-class solutions and open up tremendous career opportunities for our employees. ”

Most likely, such an aggressive policy of Visa will exacerbate long-standing competition with MasterCard in European markets, where payment systems are still relatively fragmented. The fight is expected for a partnership with thousands of European financial organizations, shareholders of Visa Europe. “It’s pretty clear that potential opportunities should outweigh any concerns for MasterCard,” said Barry's analyst Darrin Peller. And any competition of this kind, as a rule, has positive sides - both for clients of companies and for the development of mobile payment services in principle.

Also, a bargain may be for some shareholders of Visa Europe. For example, the European bank Barclays, the largest shareholder of Visa Europe, can earn as a result of the transaction more than 1 billion pounds ($ 1.15 billion)

Will affect the purchase of European Visa and directly to its customers, who will have wide access to the resources of Visa Inc. and its investments in innovative technologies, products and services in the field of mobile payments.

In general, according to representatives of companies, integration is aimed at the growth and development of Visa, at improving the quality and speed of customer service, at increasing the number of transactions. Absorption and transfer of Visa EU from the association to the enterprise, aimed at making a profit, is positioned as an undoubted benefit - both for Visa customers and partners. Well, and, of course, for the company itself - otherwise, why do we need a deal worth $ 22 billion?

In addition to the principal amount, experts Visa Inc. forecast expenditures in the amount of $ 150 million at a time for costs that ensure the transfer of property rights from one hand to another and the protection of these rights, including stamp duties for 2016. The cumulative costs associated with integration are projected to be between $ 450 million and $ 500 million by the end of 2020.

This is the largest financial step Visa Inc. in the field of buying and joining new companies to their power since the end of 2010. It was then that a deal was concluded between Visa and CyberSource, the provider of electronic payment services. The takeover of 2010 cost Visa Inc. $ 2 billion - at $ 26 per share. The current agreement is not an example larger and its cost is much higher - but, predictably, the benefits of this transaction are not larger and extend not only to profit in the near future, but also to the company's far-reaching strategy.