WorldPay deal could help businesses expand globally

Out-Law News | 19 Mar 2019 | 12:11 pm | 2 min. read

Businesses could enter other markets more cheaply and easily if a proposed deal to consolidate payment processors WorldPay and Fidelity National Information Services (FIS) goes through, a legal expert has said.

Andrew Barber of Pinsent Masons, the law firm behind, who specialises in payments, said transaction costs can be a barrier to expansion into new markets but that the potential merger of WorldPay and FIS could reduce such costs for the companies' existing business customers.

"Payment processing firms operate on economies of scale because operational efficiency comes with size," Barber said. "This has never been truer given the impact of regulatory scrutiny, the need to detect and prevent increasing card fraud and the challenge presented by non-traditional payment solutions like Square and PayPal. From a merchant perspective, this merger of complementary payment services may bring streamlined business solutions and possibly more advantageous pricing models."

"The full details of the merger are yet to be released, but any integration of WorldPay and FIS service lines should benefit merchants of either company who have ambitions to expand across the Atlantic. Currently the two companies don’t compete in geographical terms, so the creation of a single basket of services from which users can draw in both the US and the UK would be a major selling point," he said.

FIS and WorldPay are both headquartered in the US, although WorldPay's international headquarters are in London – a legacy of its roots as a UK-based business formerly owned by Royal Bank of Scotland. On Monday, FIS and WorldPay announced that they had "entered into a definitive merger agreement" which valued their combined business at approximately $43 billion.

The companies said they currently have "complementary solutions and services encompassing financial institution issuer services, network and merchant services" and that the combined business would provide "omni- channel payment and multi-currency capabilities, robust risk and fraud solutions and advanced data analytics".

"This combination greatly expands FIS’ capabilities by enhancing its acquiring and payment offerings and significantly increases Worldpay’s distribution footprint, accelerating its entry into new geographies," the companies said in a statement.

According to the companies, the deal will see a merger of existing shareholdings held in both businesses: "At the closing, under the terms of the agreement, WorldPay shareholders will be entitled to receive 0.9287 FIS shares and $11.00 in cash for each share of WorldPay. Upon closing, FIS shareholders will own approximately 53% and WorldPay shareholders will own approximately 47% of the combined company."

Thilo Schneider of Pinsent Masons, who specialises in mergers and acquisitions, said the share-for-share exchange structure envisaged in the deal is not unusual.

The deal is subject to regulatory clearance and the businesses have confirmed that they will notify their proposed merger to the European Commission and the US Department of Justice. Competition law expert Alan Davis of Pinsent Masons noted that a separate investigation of the merger by the UK's Competition and Markets Authority (CMA) post-Brexit was also possible.

"Until Brexit happens, the EU merger process would continue to cover the UK on a one-stop shop basis," Davis said. "In the event of Brexit, the CMA and the parties would then have to decide if a separate UK merger investigation/filing is required – the UK merger regime is voluntary, although the CMA has encouraged notification of deals that might straddle the Brexit date."

Davis said that while FIS and WorldPay have described their respective businesses as being complementary, it is likely that the competition authorities will still scrutinise the merger carefully.

"The Commission and the CMA have recently made clear that they intend to pay much closer attention to tech mergers going forward even where there are no direct competitive overlaps," Davis said. "Given the strong market position of FIS and WorldPay in the payments technology and merchant acquiring markets respectively, it is likely that the competition authorities will want to understand the likely effects of the merger on competition in these markets."

"In the UK, the CMA has recently raised concerns about the merger of US payments company PayPal and Swedish start-up iZettle. It said that had iZettle not been taken over, it could have provided 'strong competition' for PayPal," he said.