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Fidelity National (FIS) to Spin Off JV With Banco Bradesco

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Fidelity National Information Services, Inc. FIS recently entered into an agreement with Banco Bradesco, per which the former will dissolve its joint venture (JV) and initiate a fresh long-term contract for providing services to the latter. The agreement, subject to approval of the Central Bank and Trade Commission (CADE) of Brazil, will likely conclude by second-quarter 2019.

Terms of the Agreement

Per the agreement, Fidelity National will keep offering services to the existing non-Banco customers of the JV. Along with catering the existing services, the company will also provide additional services to Banco, such as software application licensing and management, card portfolio migration, business process outsourcing, fraud management, and professional services.  

On the JV’s dissolution, all the assets used for providing services to Banco will be transferred to a new entity which will be owned by Fidelity National. Notably, this will require the transfer of around 40% personnel of the JV to the newly-formed company. However, the assets which are used to serve non-Banco customers will be disposed off.

Impact on Financials

The winding up of the JV will unfavorably impact Fidelity National’s financial statements, as certain financials will have to be deconsolidated. This, in turn, will bring down the bank’s revenues by around $200 million, and induce a one-time charge of $100 million, resulting from the write-off of goodwill and intangibles related to the JV. The pre-tax charge will also depress the company’s net earnings attributable to common stockholders. Nonetheless, on a non-GAAP basis, the transaction will be immaterial to the company’s organic growth, adjusted EPS or free cash flow.

Deal Benefits

The new arrangement will benefit Fidelity National by assisting it to function and compete independently. It will also ease business conduct, as well as offer a better go-to-market strategy. Furthermore, the move will help boost growth prospects of Fidelity National over the long run.  

To conclude, Fidelity National looks forward to foray into the Latin American market in a bid to improve its growth potential. The company also intends to make continued investments in this region, in an effort to bank on any strategic opportunities.

The company's shares have rallied 14.7% over the past year compared with 36.3% growth recorded by the industry.

Fidelity National carries a Zacks Rank #3 (Hold), at present.

Key Picks

A few better-ranked stocks in the same space are Cardtronics PLC CATM, The FinTech Acquisition Corp. II IMXI and Global Payments Inc. GPN. All these stocks carry a Zacks Rank of 2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Over the last 60 days, the Zacks Consensus Estimate for Cardtronics’ current-year earnings has been revised 2.3% upward. Its share price has gained 33.1% in the past year.

The FinTech Acquisition’s earnings estimates for 2018 inched up 1.9% over the past 60 days. Its shares have rallied 18.7% in a year’s time.

Over the last 60 days, Global Payments’ 2018 earnings estimate moved 0.6% north. Over the past year, the stock has appreciated 30.4%.

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