Visa and Visa Europe have inked a definitive agreement for Visa to acquire Visa Europe, creating a single global company. The transaction consists of upfront consideration of €16.5 billion with the potential for an additional earn-out of up to €4.7 billion payable following the fourth anniversary of closing, for a total value of up to €21.2 billion.
The upfront consideration comprises €11.5 billion of cash and preferred stock convertible into Visa Inc. class A common stock valued at €5 billion.1 Both companies’ boards were unanimous in their support of the transaction. The transaction is subject to regulatory approvals and is expected to close in Visa Inc.’s fiscal third quarter of 2016.
Visa says as a result of the combination, European clients will have greater access to Visa Inc.’s scale and resources and global clients will have a more seamless experience. Additionally, European clients will benefit from direct access to Visa Inc.’s investments in innovative technology and differentiated products and services.
Visa Europe, an association owned and operated by member banks and other payment service providers, is the payments leader in Europe. At the end of fiscal full-year 2015, there are more than 500 million Visa cards issued across Europe. The association is responsible for more than €1.5 trillion in payments volumes, processes over 18 billion transactions annually, and partners with approximately 3,000 financial institutions in 38 countries.
The transaction will position the combined business to take advantage of a significant growth opportunity. In Europe an estimated 37 percent, or USD $3.3 trillion, of personal consumption expenditure is still done via cash and check. Europe has also been an early adopter of mobile payments, which analysts predict will see strong growth in the future given the widespread availability of Near Field Communication technology. Visa Inc. has aggressively launched new mobile payment partnerships, platforms and products that will enable faster growth and adoption of mobile payments in Europe. This includes new tokenization services, support for digital wallets and wearables, strategic investments in other enabling technologies, ecommerce and P2P payment capabilities, as well as the opening of several global innovation centers.
Under the terms of the transaction’s definitive agreements, Visa Inc. will acquire Visa Europe for upfront cash consideration of €11.5 billion and preferred stock convertible into Visa class A common stock valued at €5 billion.1 In addition, Visa Europe members could potentially receive an earn-out cash payment of up to €4.7 billion including interest for a total transaction value of up to €21.2 billion. The earn-out will be based on achievement of net revenue targets during the 16 quarters following the closing of the transaction and will be payable after the fourth anniversary of the closing. It includes up to €0.7 billion of interest at a 4% rate, compounded annually.
In conjunction with the transaction, Visa Inc. will establish a long-term capital structure. Visa Inc. intends to issue senior unsecured debt in an amount ranging between USD $15 and $16 billion in its fiscal first quarter of 2016, with maturities ranging between 2 and 30 years depending on market conditions. The proceeds from the debt issuance will be used to fund the cash consideration and increase the repurchase of class A common stock outstanding in 2016 and 2017 to offset the effect of the issuance of preferred stock. Visa Inc.’s initial leverage is expected to be between 1.4 and 1.5 times gross debt to EBITDA and long-term leverage at between 1.1 and 1.5 times gross debt to EBITDA, maintaining flexibility to pursue future growth opportunities. Visa Inc. expects to maintain current investment credit ratings of A+ / A1.
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