Brookfield-based financial technology firm Fiserv Inc. announced today it plans to acquire New York City-based First Data Corp. in an all-stock deal worth $22 billion, creating the No. 1 global card issuer and merchant processor.
During a conference call Wednesday, Jeffery Yabuki, president and chief executive officer of Fiserv, said the deal will, “create the preeminent global provider of payments and financial technology.”
“This transaction…we believe is the largest in payments and financial technology history,” Yabuki said.
The transaction is expected to bring together two leading Fortune 500 financial technology firms to provide back-end services for both financial institutions and merchants, including account processing, digital banking, card issuer processing, e-commerce, integrated payments and Clover point-of-sale software. The combined company, which is to operate under the Fiserv brand, is expected to have $15 billion in adjusted annual revenue.
The companies’ boards have both approved the deal, which is expected to close in the third quarter, pending regulatory approvals and closing conditions.
Fiserv, which offers payments, processing services, risk and compliance, customer and channel management, and insights and optimization for banks and credit unions, has 24,000 employees worldwide.
First Data specializes in commerce-enabling technology for merchants, securing and processing more than 3,000 transactions per second worldwide. It has 22,000 employees. Its Clover point-of-sale platform is used on more than 1 million devices globally.
First Data shareholders would receive 0.3 Fiserv shares in the transaction, or $22.74 per share for a premium of 29 percent, and would not have to pay taxes on the transaction. Once it is complete, Fiserv shareholders will own 57.5 percent of the company and First Data shareholders will own 42.5 percent.
Yabuki will continue to lead the combined company as CEO and chairman of the board. Frank Bisignano, chairman and CEO of First Data, will become president and chief operating officer, and a director on the board of the combined firm.
Fiserv expects the transaction to drive at least $500 million in revenue synergies over the next five years, which it will invest into product innovation and growth acceleration. And another $900 million of run-rate cost synergy savings are expected over the five-year period, “driven primarily by the elimination of duplicative corporate structures, streamlined technology infrastructure, increased operational efficiencies, process improvements and footprint optimization.”
“We have a strong track record, as does First Data, in focusing on efficiency and effectiveness,” Yabuki said in a call with analysts. “While the face amount of these cost synergies is large, our combined management team has an extremely high degree of confidence that we will achieve this objective while maintaining a commitment to serving clients with excellence in every interaction, every single day.”
The company did not give any additional detail on which offices may be closed and how many employees may be impacted by those plans.
Fiserv has been making some big changes to its businesses in recent years. The company last year acquired the debit card processing, ATM managed services and MoneyPass unit of U.S. Bancorp division Elan Financial Services for $690 million. MoneyPass is the second-largest fee-free network in the U.S., encompassing 33,000 ATMs. And in February 2018, Fiserv sold its Lending Solutions business to private equity firm Warburg Pincus LLC for $395 million.
And Fiserv in July announced it would be the naming rights sponsor for the new $524 million Milwaukee Bucks arena in downtown Milwaukee. With the 25-year deal, the terms of which were not disclosed, the arena became known as Fiserv Forum.
Fiserv has also been in the midst of a search for a new corporate headquarters location and in August 2017 had narrowed the search to three locations in the Milwaukee market, but had not ruled out other states. Wisconsin offered $10 million in tax credits for the company to keep its headquarters in the state. Fiserv has not given an update on the headquarters search for months.
The company has a significant portion of its operations in Alpharetta, Georgia, near major First Data operations in Atlanta.
“Through this transformative combination, we expect to redefine the manner in which people and institutions move money and information,” Yabuki said. “We admire First Data for its excellence in merchant acquiring and global issuing services, and the tremendous progress they have made under Frank’s leadership. We expect this combination to catalyze and support an enhanced value proposition for our collective clients and their customers.”
Yabuki said he expects the combination will aid in capital allocation for debt repayment and share repurchase initiatives, with $4 billion in free cash flow in the third year post-close. The company will refinance about $17 billion of First Data debt at closing.
“I have long admired what Fiserv has achieved over the years, and I look forward to working with the talented associates of both companies as we set a higher standard of innovation and service in the industry,” said Frank Bisignano, chairman and CEO of First Data. “Our goal at First Data has always been to provide our clients with the most comprehensive suite of innovative, highly-differentiated solutions and services, and I am excited by the significant value that the combination with Fiserv creates for all stakeholders.”
Fiserv and First Data also released their preliminary results for the fourth quarter and full year of 2018.
Fiserv reported $1.6 billion in fourth quarter revenue, up from $1 billion in the fourth quarter of 2017, and fourth quarter adjusted net income of between $339 and 343 million, or 84 to 85 cents per share, up from $289 million for the fourth quarter of 2017. Its full-year revenue is expected to be about $5.8 billion and adjusted full-year net income about $1.3 billion, or $3.10 to $3.11 per share.
First Data reported $162 million in net income, or 17 cents per share, in the fourth quarter, down from $948 million, or $1 per share, in the fourth quarter of 2017. Its fourth quarter revenue was about $2.4 billion, down 24 percent, and its full-year revenue was about $9.5 billion, down 21 percent, which it attributed to the adoption of new accounting standards.
