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Visa Might Buy European Licensee

Zacks Equity Research

The owners of Visa Inc.’s (V) European licensee – Visa Europe – might sell the company to Visa Inc., according to media reports. Visa Europe is considering the sale and will hold a board meeting to consider the same next month.

The media reports also revealed that Visa Europe would be valued at $3 billion in case the sale takes place. However, Visa Inc. might have to pay a premium for the deal.

Visa Inc. holds call options to buy the shares of the European company. Meanwhile, Visa Europe’s shareholders have put options to sell their shares to Visa Inc., which means that Visa Inc. has no option other than buying the shares in case the owners of Visa Europe decide to sell them.

Over 3,700 European banks own and operate Visa Europe. These banks are considering starting a rival payment network in Europe after the sale.

However, neither company confirmed the transaction.

Although Visa Inc. will have to spend a huge amount in case the sale is finalized, the company will gain enormously in terms of international market share as Visa Europe is the largest card network in the European Union at present. Moreover, the purchase will expand the company’s presence in rapidly growing markets in European countries like Poland and Turkey.

The purchase will also enhance the competitive strength of Visa Inc. as rival MasterCard Incorporated (MA) already has a presence in Europe. On the other hand, the company will face higher regulations as it will have to abide by the regulations of the European Union following the purchase.

Visa Inc. currently carries a Zacks Rank #2 (Buy). Other companies offering financial services such as Total System Services, Inc. (TSS) and Alliance Data Systems Corporation (ADS) also carry a Zacks Rank #2 and are worth considering.

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