Georgia-based financial solutions company First Data (FDC
20.74, +3.20, +18.24%) advanced 18.9% ahead of the open on Wednesday in response to news that
Wisconsin-based financial software company Fiserv (FISV 75.04
-- indicated 5.5% lower ahead of the open) would acquire First Data in an
all-stock transaction for an equity value of $22 bln.
Specifically, under the terms of the agreement, First Data shareholders will receive a fixed exchange ratio of 0.303 Fiserv shares for each share of First Data common stock they own, for an equity value of $22 bln. This represents $22.74 based on closing prices as of January 15, and a premium of 29% to the five-day volume weighted average price as of that date.
Following the close of the transaction, Fiserv shareholders will own 57.5% of the combined company, and First Data shareholders will own 42.5%, on a fully diluted basis. The all-stock transaction is intended to be tax-free to First Data shareholders.
The deal is expected to generate about $900 mln of run-rate cost savings and at least $500 mln of revenue synergies with expected annual free cash flow of more than $4 bln, including synergies, in year three. These cost savings are expected to be driven primarily by the elimination of duplicative corporate structures, streamlined technology infrastructure, increased operational efficiencies, process improvements, and footprint optimization. Further, the two parties project the deal to be accretive to adjusted EPS by more than 20% in year one and expects accretion of more than 40% to adjusted EPS at the full cost synergy run-rate.
Upon closing, the board of the combined company will consist of 10 members, six of whom will be from the board of Fiserv and four of whom will be from the board of First Data. Upon closing, Jeffery Yabuki, current Fiserv President and CEO, will serve as CEO and Chairman of the board of directors of the combined company. Frank Bisignano, current Chairman and CEO of First Data, will assume the role of President and COO, and will serve as director of the board of the combined company. The combined entity will be known as Fiserv.
Concurrent with the merger announcement, Fiserv also gave preliminary fourth quarter and full year 2018 results this morning in addition to providing an initial outlook for 2019.
Specifically, Fiserv sees worse than expected fourth quarter adjusted earnings per share (EPS) of $0.84-0.85 on worse than anticipated revenues of $1.47 bln. Internal revenue growth for the company is expected to be approximately 4.5% for both the fourth quarter and full year 2018.
Fiserv expects internal revenue growth in a range of 4.5-5% in 2019. The company also expects adjusted EPS in a range of $3.39-3.52, which represents growth of 10-14% over the expected 2018 range, as adjusted for the Lending Solutions Transaction. The company’s outlook for 2019 does not include any impact related to the transaction with First Data.
Originally bought out by KKR & Co. Inc. (KKR 21.10 -- indicated 2.8% higher this morning) in 2007, First Data was spun out of the asset manager in a 2015 IPO which saw its value fall nearly 50% in the three months after the initial listing. Shares of First Data have steadily recovered since that tough first few months, though had been trading about 30% off all-time highs from September 2018 into this morning’s announcement.
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