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Fidelity (FIS) & Worldpay Stocks Rally on Merger Announcement

Zacks Equity Research

Fidelity National Information Services FIS announced plans to acquire Worldpay, a leading payments processing company, via a stock-cash deal within the second half of 2019. The combined company will retain the acquirer’s name and will be headquartered in Jacksonville, FL.

Notably, FIS shareholders will retain 53% ownership in the combined company and Worldpay shareholders will own the remaining 47%. The merger is expected to bode well for FIS by boosting its acquiring and payment offerings, and expanding geographical reach.

Shares of Fidelity National and Worldpay gained 5% and 14%, respectively, in the pre-market trading session, after the companies released the merger news in the market.

Details of the Deal

Per the terms of the deal, Worldpay’s enterprise value of about $43 billion includes the assumption of Worldpay debt, which FIS expects to refinance. Upon completion of the merger, shareholders of Worldpay will receive 0.9287 FIS shares and $11.00 in cash for each share held.

The companies have decided to have 12 members in its board of directors, of which seven will be from FIS. Gary Norcross will remain as FIS Chairman of the board, President and Chief Executive Officer, whereas Charles Drucker, Worldpay’s current Executive Chairman and CEO, will serve as the Executive Vice Chairman.

Benefits to be Derived From the Merger

The combined entity is expected to aid in revenue growth of 6-9% through 2021, since the merger will create significant opportunities across merchant and banking businesses. Also, total EBITDA synergies of $700 million are likely to be achieved from the combination of revenues and expense opportunities over the next three years.

Upon closing of the merger, the company will have pro-forma 2018 annual revenues and adjusted EBITDA of nearly $12.3 billion and $4.9 billion, respectively. FIS anticipates retaining its investment grade credit ratings of Baa2/BBB, reducing leverage to approximately 2.7x over 12-18 months and continuing to grow its dividend, supported by robust free cash flow.

The combination of FIS and Worldpay, two companies that are leading their respective markets in modernization investments, provides clients of both organizations access to a wider portfolio of digital assets for accelerating revenue growth, streamlining operations and creating a better engagement with customers.

Our Take

The booming payments industry has seen some strategic moves lately. In January 2019, Fiserv FISV agreed to buy First Data Corporation FDC for $22 billion, in order to become the world’s largest payments processor.

Fidelity’s attractive core business, with a recurring revenue model and investment in digital products, keeps it well positioned for growth. Also, its strong capital position keeps the company well poised to undertake opportunistic expansion strategies.

The company's shares have gained 7.8% over the past three months compared with 19.7% growth recorded by the industry.

 

Zacks Rank & Another Stock to Consider

Fidelity National flaunts a Zacks Rank #1 (Strong Buy), at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

Another top-ranked stock in the same space is Global Payments GPN, carrying a Zacks Rank #2 (Buy). The company’s estimates for 2019 have been revised marginally upward over the past 30 days. Its shares have gained more than 30% over the past three months.

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