LONDON (Reuters Breakingviews) - Worldpay discovered on Wednesday that a couple of birds in the bush are sometimes worth a bit more than one in the hand. A day after Britain’s biggest payment processor said it had received approaches from both Vantiv and JPMorgan, the company plumped for the former’s offer of nearly $10 billion in a mix of cash and shares. That took the shine off the share price of both the buyer and its target. Perhaps because the deal only makes sense with some very charitable assumptions.
If the acquisition goes ahead, Worldpay investors will receive 55 pence for each share they own as well as 0.0672 new Vantiv shares. The total package is worth a fifth more than Worldpay’s June 30 closing price of just under 315 pence and means that investors in the British company would own roughly 41 percent of the larger group. That’s decent but not quite as lofty as the 450 pence offer that several analysts said might be in the offing.
Probably just as well from Vantiv’s point of view. Worldpay says the two boards have identified substantial potential savings but neither side has yet to produce any estimates. But to justify a premium of around $1.6 billion, they would need to make roughly $225 million of pre-tax cost savings per year, according to a Breakingviews calculation. Eliminating duplicated costs in the United States will no doubt play a central role, but even so the goal appears ambitious.
There are a couple of other niggling concerns. One is why JPMorgan decided not to bid. Another is that Vantiv Chief Executive Charles Drucker and his Worldpay peer, Philip Jansen, will jointly run the company. Such setups can be a recipe for conflicts and muddled visions. However, neither is as worrying as investors’ knee-jerk reaction to the deal.
Vantiv shares fell as much as 5 percent from their previous close, before recovering slightly later. The less enthusiastic investors in the U.S. company are about the deal, the less appealing it becomes for those who own its British peer.