Fiserv, Inc. FISV is acquiring First Data Corporation FDC in a $22-billion all-stock deal.
The deal is at a premium of 29% over First Data's closing price on Tuesday. It is expected to close during the second half of 2019. Fiserv shareholders will own 57.5% of the combined company and First Data shareholders will own the rest.
First Data's shares closed 21.1% higher at $21.24 on Wednesday, while Fiserv's fell 3.3 percent.
List of Benefits to Fiserv
This is one of the biggest financial mergers in a decade and will help Fiserv emerge as one of the world’s largest payments and financial technology providers.
Fiserv will link its merchant and cash management capabilities with that of First data to expand offerings and provide First Data’s Clover cloud-based platforms for small and medium-sized businesses. The company will be able to develop a differentiated, end-to-end payments platform and offer additional payment methods.
Fiserv, Inc. Price, Consensus and EPS Surprise
Fiserv, Inc. Price, Consensus and EPS Surprise | Fiserv, Inc. Quote
Fiserv and First Data are targeting the development of complementary technology capabilities and solutions to enhance client value as well as increase market differentiation. The combined company plans a $500-million incremental investment to enhance solutions over five years.
Also, the acquisition seems to be part of Fiserv’s increased push to fend off growing competition from the likes of Fidelity National Information Services FIS Square SQ and Adyen NV.
The transaction is anticipated to be accretive to Fiserv's adjusted EPS by more than 20% in the first full year following the close and generate free cash flow of more than $4 billion in the third year following the close.
It is expected to generate at least $500 million of revenue synergies and $900 million of run-rate cost synergy savings over five years.
Relief for First Data CEO
The deal should provide respite to First Data CEO Frank Bisignano, who has been struggling to turn the company round. First Data was grappling with a debt from a $29-billion leveraged buyout led by private equity firm KKR & Co Inc in 2007.
Fiserv had secured debt to refinance First Data's existing $17-billion debt and expects to return to its historical leverage levels within two years after the deal closes.
Bisignano will become President and COO and join the board of directors of the combined company.
Fiserv carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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