Global Payments Tumbles as Heartland Deal Seen as Expensive

  • Card-processing firm to pay $4.3 billion for rival Heartland
  • Global Payments sees annual savings of up to $125 million

Global Payments Inc., the Atlanta-based card-processing firm, fell the most since 2012 after agreeing to buy smaller competitor Heartland Payment Systems Inc. for a price some analysts said was too expensive.

Global Payments tumbled 11 percent to $63.83 at 11:23 a.m. in New York, the worst performance in the 68-company Standard & Poor’s Midcap Information Technology Index. The firm said Tuesday it was paying $4.3 billion in a cash-and-stock deal for Princeton, New Jersey-based Heartland, or about $100 a share.

“At first blush, the purchase price seems aggressive," Andrew Jeffrey, a SunTrust Robinson Humphrey Inc. analyst, said Wednesday in a note to investors. The deal “seems expensive to us,” wrote Susquehanna International Group analysts led by James Friedman.

Susquehanna estimated the price represents a 19 percent premium over Tuesday’s close and an almost 30 percent increase over the price before Bloomberg reported on the possible acquisition earlier this month.

Cost Savings

The deal, expected to be completed in the fiscal fourth quarter ending May 31, should result in at least $50 million of cost savings in fiscal 2017 and approximately $125 million annually after that, the companies said. The savings could be “much greater than” that, Tien-tsin Huang, a JPMorgan Chase & Co. analyst, said in a note to investors.

Global Payments and Heartland are two of the U.S.’s largest so-called merchant acquirers, or companies that provide technology for helping businesses and government entities process credit and debit transactions. Global Payments had about 2.9 percent of the global transactions processing market in 2014, while Heartland had about 2.1 percent, according to the Nilson Report, an industry trade publication and data service.

The combined company will provide services to about 2.5 million customers globally, and is expected to generate more than $3 billion of adjusted net revenue annually, according to the statement. Global Payments anticipates raising its forecast to “high single-digit” adjusted net revenue growth and “mid-teens” cash earnings growth per share.