Deals

Lionel Laurent is a Bloomberg Gadfly columnist covering finance and markets. He previously worked at Reuters and Forbes.

The global payments industry is growing and its champions must straddle the globe. That's the main reason behind U.S. market leader Vantiv Inc.'s $10.4 billion takeover of Worldpay Group Plc, its British counterpart.

It's not a straightforward bet: the valuation is high, cost overlaps are relatively few and the proposed co-CEO structure is awkward. Everything must grow for Vantiv to justify the price it's paying.

On Wednesday, Vantiv put some extra meat on the bone for Worldpay shareholders -- without changing the financial terms. The combined company will now seek a secondary listing in London, something that should allow investors restricted to holding U.K. stocks to share in any upside created by the deal.

American Pie
The U.S. accounts for most of the expected $200 million of savings from the deal
Source: Company filings

The companies expect to eliminate $200 million annually of pretax costs within three years of the deal. One-time restructuring and integration expenses are pegged at $330 million.

The fleshed-out proposals won't move the needle much. The $200 million figure is broadly in line with what analysts had been predicting, based on the most obvious overlap the two companies have in the U.S. market. That suggests the kind of easy cost savings investors like to see are limited. The U.S. only accounts for about 15 percent of Worldpay's underlying Ebitda.

Worldpay shares ticked up 0.1 percent, to 384 pence on Wednesday, not far short of the implied 397 pence-a-share Vantiv is offering in cash and stock.

Hovering Shares
Over the past month, Worldpay shares have stabilized near the offer price
Source: Bloomberg

As important is what's not on the page. The prospects for revenue growth, cross-selling and new market opportunities haven't been quantified.

Worldpay and Vantiv together process about $1.5 trillion of payments annually -- and this is an industry in growth mode. McKinsey expects the global e-commerce market will double in size to about $4 trillion between 2015 and 2020. The duo will need macroeconomic trends to hold up and for clients to follow.

Growing Market
The global e-commerce market is set to double by 2020
Source: McKinsey/Company filings

Vantiv has a lot of experience integrating acquisitions, with recent purchases including Mercury Payment for $1.7 billion and Moneris USA for $425 million. Yet Worldpay is on a much bigger scale. Having two co-CEOs, one reporting to the other, will only complicate things.

Some Worldpay investors would have preferred a fatter premium, no doubt, but this is an already pricey acquisition for Vantiv. The target trades at 29 times forward earnings, according to Bloomberg data, a premium to Vantiv and Danish peer Nets A/S.

Looking several years ahead, unhappy Worldpay shareholders may have a point: as spending on technology dwindles, so earnings should rise. With no other bidder on the horizon, though, Vantiv is offering a handy exit route in the short term.

In the medium term, a lot will need to go right for Vantiv to justify the price. As it is, the deal looks like a triumph of hope over easy savings.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Lionel Laurent in London at llaurent2@bloomberg.net

To contact the editor responsible for this story:
Edward Evans at eevans3@bloomberg.net