Visa Inc. surged 7.5 percent after the world’s biggest payments network said it expects to complete discussions over a potential deal to acquire Visa Europe Ltd. by the end of October.
Visa jumped $5.35 to $77.10 at 4:20 p.m. in New York after the Foster City, California-based company reported a fiscal third-quarter profit that beat analysts’ estimates and said provided an update on talks with its European counterpart.
“There is compelling logic for both Visa Inc. and Visa Europe to consummate a business combination and therefore regularly engages in such discussions,” the U.S. firm said Thursday in a statement, adding there’s no assurance a deal will happen. “The company is targeting to resolve these discussions by the end of October and will provide an update during the fourth quarter earnings call, if not sooner.”
Visa and its European counterpart split in 2007 ahead of the U.S. company’s initial public offering. Visa Europe is owned by more than 3,000 European banks and has a put option that would force its former parent to buy it within about nine months if at least 80 percent of its board agrees, according to company filings. Visa also has held talks to buy its European counterpart in a deal that could be valued at as much as $20 billion, people with knowledge of the matter have said.
If Visa were to move forward with any deal, there could be restrictions placed on its ability to repurchase stock, Chief Executive Officer Charlie Scharf said Thursday on a conference call.
“The conditions are unusually well aligned to get the deal done,” Lisa Ellis, an analyst at Sanford C. Bernstein & Co., said in a note before the results were released.
Visa has estimated that exercising the put option would cost the company more than $10 billion. The final price depends on a complicated formula with a range of variables. Visa Europe, which has a licensing agreement with Visa, managed more than 500 million accounts and processed more than 16 billion transactions last year, according to its annual report.
The lack of a meaningful contribution to earnings from Europe has long been seen as a weakness for Visa and an advantage for smaller competitor MasterCard Inc., which owns its European business.
The U.S.-based payments network said Thursday that net income for the quarter climbed 25 percent to $1.7 billion, or 69 cents a share, from a year earlier. Profit excluding an adjustment to the Visa Europe put option was 74 cents a share, according to the statement. Taking out a tax benefit brings the figure to 62 cents. The average estimate of analysts in a Bloomberg survey was 58 cents.
Visa revised its EPS growth forecast for the fiscal year ending Sept. 30 to “mid-teens range” from “low-end of the mid-teens.” Revenue rose 12 percent to $3.52 billion, beating analysts’ estimates of $3.36 billion. Total operating expenses increased 11 percent to $1.3 billion.
Visa shares have gained 9.5 percent this year through the close of regular trading Thursday, compared with the 10 percent advance of MasterCard, which reports results next week.