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Thursday, February 16, 2023

FIS readies spinoff of Worldpay

Leading acquirer Worldpay will once again be a solo act. Its parent, FIS is spinning off the merchant acquiring business within the next 12 months.

FIS already was a major provider of software and services to financial institutions when it purchased Worldpay in 2018 for a reported $43 billion. (At around the same time, Fiserv, a major competitor to FIS, purchased First Data Corp. for a reported $22 billion.) But the move proved a drain on FIS's balance sheet. In the four years since purchasing Worldpay, FIS shares have lost more than half their value.

FIS brought in a new management team and announced a "comprehensive assessment" of its business in late 2022, which led to the planned spinoff.

Chairman of the Board Jeffrey A. Goldstein said the spinoff would improve both companies' performance. "We are confident that this is the right time for the separation of Worldpay," he said. Stephanie Ferris, FIS president and CEO, added, "We will create two more focused, agile companies that can pursue tailored strategies that are aligned with specific long-term growth opportunities."

Upon completion of the spinoff, the merchant services business will operate as Worldpay. Former Worldpay CEO Charles Drucker has been named strategic advisor for the project and will become CEO of the new company once the spinoff is competed. Ferris will remain president and CEO of FIS.

FIS, in a statement, said the two companies will "continue to maintain a commercial relationship" and work to ensure continuity of services to clients.

The many lives of Worldpay

Worldpay began its foray into the world of merchant services as a unit of the Royal Bank of Scotland (when it was known as RBS Worldpay) which was forced to divest the business as part of a government bailout of the bank following the 2008 financial crisis. Soon after Worldpay embarked on an international expansion that included acquiring U.S. payment processing companies.

In 2018, Vantiv acquired Worldpay, retaining the Worldpay moniker for the combined business. That business was acquired by FIS a year later.

Worldpay, which claims to be the largest acquirer globally, by transactions, produced flat growth for the FIS balance sheet in 2022, according to the company's earnings statement. The new Worldpay will focus on expanding its ecommerce and enterprise offerings and "more aggressive investment opportunities, including M&A," FIS said.

Existing FIS shareholders are to receive a pro rata distribution of shares in the new Worldpay in a stock transaction that's expected to be tax-free to FIS and shareholders for U.S. federal income tax purposes.

FIS will stick to core processing

Ferris said FIS is "recommitting" to it core business providing back-office processing services to financial institutions.

Similarly, the deal will allow Worldpay to make the investments needed to grow in a rapidly evolving market, Goldstein explained. "The pace of disruption in payments is rapidly accelerating, requiring increased investment in growth and a different capital allocation strategy for our merchant solutions business," he said.

Vasundhara Govil, a stock analyst with Keefe, Bruyeete & Woods, characterized the spinoff as a good move. "With the announcement of the merchant business spinoff this morning, management is forging a path forward to unlock value of the core processing franchise, while also allowing for better allocation of capital and management resources to turn around the merchant business," he said in a statement. end of article

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