By Sudip Kar-Gupta
PARIS (Reuters) - Payments company Worldline agreed on Monday to buy French rival Ingenico (PA:INGC) in a 7.8 billion euros ($8.7 billion) deal to create a new European leader in the sector and fend off cut-throat competition from internet and telecoms companies.
The purchase by Worldline, which was born out of French IT company Atos (PA:ATOS), is the latest deal in the payments sector, where the firms cater to everything from small shops needing card terminals to large online businesses.
The increasing use of smartphones for online payments and the growing success of Apple Pay (O:AAPL), Google Pay (O:GOOGL) and Amazon (O:AMZN) has led to more competition, with mergers and acquisitions allowing firms to build scale and cut costs.
The global payments industry is set to reach $3 trillion a year in revenue by 2023 as more people switch from cash to digital payments for online and store purchases, according to research by consulting firm McKinsey.
In 2019, Fiserv Inc (O:FISV) bought First Data Corp for $22 billion, while Fidelity National Information Services (FIS) (N:FIS) bought Worldpay for about $35 billion, consolidating their positions as the top two players globally.
The takeover of Ingenico gives the firm an implied equity value of 7.8 billion euros and would immediately boost Worldline's earnings per share, with around 250 million euros expected in savings by 2024.
The price tag implies a premium of about 16% to Ingenico's closing market value on Friday of around 6.7 billion euros.
The companies expect the transaction, which requires regulatory approval, to close in the third quarter of 2020.
Ingenico shareholders would receive 11 Worldline shares and 160.5 euros in cash for seven Ingenico shares, in a primary tender offer. There would also be a secondary offer, with 56 Worldline shares exchanged for 29 Ingenico shares, translating into an offer price of 123.10 euros per Ingenico share.
INGENICO SHARES SURGE
Ingenico shares jumped 11.2% to 117 euros in early trading, while Worldline shares fell 4.2%, reflecting some concerns that Worldline is paying a hefty premium to buy Ingenico.
On closing the deal, former Worldline shareholders would own 65% of the combined entity and former Ingenico shareholders would own 35%. Worldline Chairman and CEO Gilles Grapinet would become CEO of the combined company and Ingenico Chairman Bernard Bourigeaud would become non-executive chairman.
Worldline, in which Atos still has a 16.9% equity stake, said the deal would give it access to Ingenico's strong presence in the travel, health and retail sectors, while the combined company would have a bigger geographic reach and an extended partnership with German savings banks.
Creating a European champion able to compete with bigger American rivals could also be welcomed by European politicians, with Europe's antitrust chief having voiced concerns over Apple Pay.
"The local tie up by Ingenico and Worldline makes sense so instead of competing with each other in their domestic space the combined company can focus on bigger fish to fry," said MB Capital managing director Marcus Bullus.
"I don't see there being any anti-trust issues in what should be quite a clean streamlined deal that will create added value for shareholders of the combined company," he added.
Atos welcomed the deal and said it could continue to sell down its stake in Worldline. Ingenico has long been seen as a target. Sources previously told Reuters that Edenred (PA:EDEN) and French bank Natixis (PA:CNAT) had both been at one point interested by Ingenico.
Morgan Stanley (N:MS) and Cardinal Partners were the financial advisers to Worldline, while Goldman Sachs Paris (N:GS) and Rothschild (PA:ROTH) advised Ingenico.