Visa Alters Terms of Europe Deal and Warns of Delay; Shares Fall

  • Purchase may not be completed until after June, Visa says
  • Net income climbs 10% to $1.71 billion, beats estimates

Visa Inc., the world’s largest payments network, agreed to amend the terms of its planned acquisition of Visa Europe Ltd. after feedback from the European Commission, and said the deal may not be completed until after June 30.

Visa will boost the cash consideration by 1.75 billion euros ($1.98 billion), with 750 million euros of that sum due at closing and the rest on the third anniversary of the deal’s completion, Foster City, California-based Visa said Thursday in a statement before releasing fiscal second-quarter results. That replaces a so-called earn-out, in which a portion of the sale price would be tied to results after the transaction is consummated. The terms of the original contract, reached in November for as much as 21.2 billion euros, remained otherwise unchanged, Visa said.

“We feel terrific about our future together," Chief Executive Officer Charlie Scharf said on a call with analysts. “Transition planning is well under way and we have great confidence" in the deal.

The Europe transaction has been closely watched amid speculation as to whether the companies, which split in 2007 ahead of the U.S. firm’s initial public offering, would reunite. The lack of meaningful contributions 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. Visa said Thursday that the deal may not be completed by the end of the fiscal third quarter as expected.

Possible Delay

“It’s possible that we could close the transaction towards the end of the quarter, but it could slip past” that date, Scharf said on the call.

Visa fell 5 percent to $76.75 at 5:40 p.m. The shares gained 4.2 percent this year through end of regular trading in New York.

The company has said it expects the purchase, which remains subject to regulatory approval, will add to earnings per share growth beginning in fiscal year 2017 as it begins to benefit from revenue overlaps and lower costs. The firm said it expects annual cost savings of about $200 million when the two companies are fully integrated by 2020.

Profit Climbs

Net income for the period ended March 31 climbed 10 percent to $1.71 billion, or 71 cents a share, from $1.55 billion, or 63 cents, a year earlier, Visa said in a separate statement. Adjusted profit, which excludes a $116 million gain from currency hedging, was 68 cents a share, beating by one cent the average estimate of 32 analysts surveyed by Bloomberg.

Revenue rose 6.4 percent in the quarter to $3.63 billion from a year earlier, beating analysts’ estimates, while operating expenses climbed 5.7 percent to $1.19 billion, the company said. Payments volume advanced 12 percent to $1.3 trillion on a constant dollar basis, and cross-border volume, a measure of spending abroad, climbed 5 percent, according to the statement.

Visa lowered its forecast for net revenue growth for fiscal 2016 to 7 percent to 8 percent on a constant dollar basis, from a “high single-digit to low double-digit” range. That doesn’t include effects of a Visa Europe deal, Chief Financial Officer Vasant Prabhu said on the call.

American Express Co., the biggest credit-card issuer by purchases, and Discover Financial Services earlier this week posted first-quarter profit that beat analysts’ estimates as customer purchases increased. MasterCard, the second-largest payments network, is scheduled to report results April 28.

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