Mastercard Buys Most of Britain’s VocaLink for $920 Millionby
All-cash deal subject to approval by European, U.K. regulators
Mastercard hoping to build out faster ACH payments network
Mastercard Inc. agreed to buy a controlling stake in VocaLink Holdings Ltd., the payments processor that handles most payroll and household bill processing in the U.K.
Mastercard will pay about 700 million pounds ($920 million) for 92.4 percent of the London-based firm, the acquiring company said Thursday in a statement. VocaLink’s existing shareholders, which include 13 banks and building societies, will retain 7.6 percent ownership and can receive as much as 169 million pounds more if performance targets are met.
VocaLink primarily processes non-card electronic payments in the U.K., where the company generates more than 90 percent of its revenue. The firm is developing a faster system for the bank-owned automated clearing house payments network in the U.S., a capability that would allow Purchase, New York-based Mastercard to better compete in the growing business-to-business and person-to-person payments markets.
“We will be able to build on the base that VocaLink has been building in the U.K. and take this around the world,” Chief Financial Officer Martina Hund-Mejean said in a telephone interview.
VocaLink processes more than 90 percent of salaries and more than 70 percent of household bills in the U.K., according to the statement. It also handles communications between almost all of the country’s 67,000 automated teller machines. The deal will give Mastercard, the second-largest U.S. payments network, more of a foothold in Britain after larger rival Visa Inc. boosted its presence there with this year’s purchase of Visa Europe for more than $20 billion.
“We view it as a positive that Mastercard was able make this acquisition of assets with fairly substantial potential, particularly as it relates to gaining a bigger foothold in the U.K. market,” Sanjay Sakhrani, an analyst at Keefe, Bruyette & Woods, said in a note to clients.
Mastercard shares declined 1 percent to $92.37 at 2:17 p.m. in New York. The stock has slid 5.1 percent this year, compared with the 4.4 percent advance of the 92-company S&P 500 Financials Index.
The all-cash transaction is expected to be a drag on profit for as long as two years after the deal is completed, Mastercard said. If the purchase closes in early 2017, the company estimates it would reduce earnings per share by 5 cents in both 2017 and 2018.
David Yates, VocaLink’s chief executive officer, will continue at the company as chairman and join Mastercard’s management committee. Paul Stoddart will become CEO.
Barclays Plc, one of VocaLink’s five largest shareholders, said in a separate statement that it sold the majority of its stake to Mastercard for 104 million pounds. The U.K.-based bank will be left with a 1.5 percent share, according to the statement.
The deal, Mastercard’s biggest since the company went public in 2006, is subject to approval by European Union and U.K. regulators, Hund-Mejean said. The European Commission will be the first to review the deal, and the group has the ability to forward it to other agencies for their blessing.
The U.K.’s vote in June to leave the E.U. had “absolutely no impact” on the negotiations, which had been going on for months, Yates said during a call with analysts. Brexit also shouldn’t affect VocaLink’s core business in the region, he said.
Mastercard’s purchase shows that the U.K. remains “an attractive destination for international investors,” Philip Hammond, the country’s chancellor of the exchequer, said in a statement.
“Britain is and continues to be an open and globally facing country in which to do business,” Hammond said.
Citigroup Inc. advised Mastercard on the deal and Lazard Ltd. advised VocaLink.