Visa Inc announced this morning it has reached a deal to buy its former subsidiary Visa Europe for as much as €21.2bn (£15bn).
The consolidation of Visa Europe's 500 million card accounts, worth more than €1.5 trillion, will create a single global payments company.
The upfront payment comprises of €11.5bn in cash and €5bn-worth of preferred stock (which pays fixed dividends, taking preference over ordinary share dividend payments) convertible into Visa Inc class A common shares.
There is also a potential later pay-out, worth up to €4.7bn, payable after the fourth anniversary of the deal closing if net revenue targets are met.
Payments processor Worldpay, which recently floated on the London Stock Exchange, said it expected to net €1.2bn from selling off its 5.9 per cent stake.
Barclays, one of several UK banks that are members and shareholders in Visa Europe, said it was expecting to make £400m post-tax profit from the initial pay-out, Lloyds estimated it would report a pre-tax gain of £300m from the upfront cash consideration, and Nationwide said it would receive "one per cent of the total proceeds payable at such time."
Visa, which also released its fourth-quarter results today, announced it had authorised a new $5bn (£3.2bn) share buyback program.
In the three months to the end of September, Visa reported income jumped from $1.07bn to $1.51bn, and earnings per share were up to $0.62, from $0.43.
Charles Scharf, chief executive of Visa Inc, said:
We are very excited about unifying Visa into a single global company with unmatched scale, technology and services…Together we will bring the power of electronic payments to more people, in more places, than ever before.
We look forward to the new integrated Visa, and we are fully committed to ensuring our efforts in Europe are tailored to meet local market needs. This includes being responsive to the evolving regulatory landscape, maintaining a European data centre, and partnering with Europe’s growing payments ecosystem to co-develop locally-relevant products, services and experiences.
Finally, we will continue to have a strong local management team in Europe, with London remaining as headquarters for the region.
The Bank of England was reportedly keen for Visa to commit to keeping a significant number of the 1,700-strong Visa Europe workforce in the UK, Sky News reported.
Visa said it expects to issue $15-$16bn in unsecured senior debt in the next three months to fund the cash payment, and for the repurchase of common stock to offset the effects of issuing preferred stock.
Senior debt takes priority over other debt issued and must be repaid before other creditors receive any money if the issuer were to go bankrupt; unsecured debt is not backed by specific collateral, such as property, which could be confiscated if the debt or fails to fail.
The company warned it expected the deal to dilute earnings per share in the 2016 financial year, thanks in part to the stock issuance, but hopes the benefits of cost-cutting will be felt by 2017.
Visa's share price was down two per cent in pre-market trading in New York on the back of the announcement.
Visa Europe was part of Visa's network until 2007, when it was left as a separate entity as the rest of the units merged to form a single company ahead of Visa's IPO in 2008.
The deal, which received unanimous support from the boards of both companies, is still subject to regulatory approval and is expected to close in the third quarter of 2016.