American credit cards company, Visa Inc is in advanced talks to purchase its former subsidiary Visa Europe for about $22bn (£14.34bn, €20bn). This deal would be beneficial to Visa Inc as it would boost its earnings from Europe which are currently low when compared to its peers like MasterCard who earn a substantial amount from the same region.
This transaction would also help the American payment systems company to have its global operations under one roof. The deal may be announced as early as 5 November (Monday), when Visa Inc releases its quarterly results.
Lisa Ellis, a payments analyst at Sanford C Bernstein & Co, noted that this deal would boost Visa's estimated per-share earnings in 2017 by about 12%. She added, "This deal has come and gone many times, but it is hard to imagine, when they have come this far, what could happen to make either side walk away."
According to analysts, the strong US dollar and the availability of cheap debt financing makes Visa Inc well positioned to acquire its former subsidiary.
Both these companies worked under the same umbrella company called Visa International Service Association for many years. In 2007, however, Visa's American operations got listed to become a publicly traded company – Visa Inc. Eventually the parent company's operations from other parts of the world united with Visa Inc except for Europe. The two companies, however, worked together sharing the Visa brand name, R&D and other operations.
Visa Europe, which is owned by more than 3,000 European banks, has a put option, meaning an option to sell an asset at an agreed price on or before a particular date. This option would force a sale to its former parent.
The proceeds from this deal would come as a breather for many European banks that are currently going through a financial turmoil. Barclays, the London-based bank that recently appointed Jes Staley as CEO, is the largest stakeholder in Visa Europe and could earn more than £1bn from this deal.
The European counterpart manages more than 500 million accounts and processed more than 16 billion transactions in 2014, helping it to earn €219.8m in 2014, up 29% from a year earlier.
M&A activity with deal values greater than $10bn in this industry has been unheard of since the 2008 financial crisis. Visa Inc's largest deal until date is that of Cybersource, a provider of security services to online merchants that it acquired in 2010 for about $2bn.