FIS walks back Worldpay merger, will spin off its merchant business

Merchant-acquiring company Fidelity National Information Services Inc. plans to spin off its merchant business, the company announced Monday.

which announced a “comprehensive assessment” of its business under its new management team in December, intends to maintain a commercial relationship with the Worldpay merchant business that it is spinning off. The move essentially reverses the Worldpay merger that FIS announced in early 2019.

FIS and peers Global Payments Inc.
and Fiserv Inc.
have been known as the “deal stocks” within the payments universe, as all three announced big mergers in the first half of 2019. FIS stock has been the weakest performer of the bunch since the time of the company’s $43 billion Worldpay acquisition announcement, however, a deal one analyst recently called “underwhelming.”

The spinoff of Worldpay is expected to be conducted in a tax-free manner and completed within 12 months, according to Monday’s release. FIS shareholders will receive a pro-rata distribution of shares in Worldpay, though the company has yet to determine the actual number of shares that will be distributed.

“In evaluating a broad range of alternatives as part of our previously announced comprehensive assessment of FIS’ strategy, businesses, operations, and structure, FIS management and the Board concluded that the spin-off of Worldpay will unlock shareholder value by improving both companies’ performance, enhancing client services, and simplifying operational management,” Chairman Jeffrey Goldstein said in the release.

Chief Executive Stephanie Ferris added that the move “will enable FIS to target a strong investment-grade credit rating, while allowing Worldpay to invest more aggressively for growth.”

The merchant business will operate under the Worldpay name, “reestablishing and strengthening a brand that remains highly trusted among clients and partners,” according to the release.

Reuters reported on a potential spinoff Friday, prompting analysts to weigh in on such a move.

“While a Merchant spin-off would make FIS lose some scale, it would get rid of its lowest-value asset and make FIS a pure play Core/Payments/Capital Markets company,” Baird’s David Koning wrote in a note to clients over the weekend.

FIS also reported earnings Monday for its fourth quarter, noting that it took a $17.6 billion non-cash goodwill impairment charge related to the merchant-solutions business during the quarter.

Factoring that in, the company generated a fourth-quarter net loss of $17.4 billion, or $29.28 a share, versus net income of $291 million, or 47 cents a share, in the year-earlier quarter. On an adjusted basis, FIS earned $1.71 a share, down from $192 a share a year before, while analysts tracked by FactSet were anticipating $1.70 a share.

Revenue inched up to $3.71 billion from $3.67 billion, while analysts were modeling $3.69 billion.

FIS pushed up the date of its earnings report, having previously scheduled it for Wednesday.

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