Visa falls after buying its former European unit
Visa fell the most in the Standard & Poor's 500 Index after the world's largest payments network agreed to acquire its former European unit and posted profit that missed analysts' estimates for the first time in two years.
Visa slid 3.5pc to $74.90 at 1:10pm yesterday in New York, the most intraday since the end of September, while the S&P climbed 0.8pc.
The company said yesterday that it agreed to buy Visa Europe in a deal valued at as much as €21.2bn. Visa also reported that fiscal fourth-quarter profit rose 41pc to $1.51bn, or 62 cents a share, from $1.07bn, or 43 cents, a year earlier. That was one cent below the average estimate of 32 analysts surveyed by Bloomberg.
The Europe transaction ends years of speculation about whether the companies, which split in 2007 ahead of the US firm's initial public offering, would reunite. The deal will bolster Visa's revenue in Europe, gives the company more opportunities to return capital to shareholders and allows Visa to increase investments in technology and innovation in the region, according to analysts including Barclays Darrin Peller.
"This deal is good for the entire payments industry in Europe," Mr Peller said. "MasterCard was always historically been seen as able to compete by having the better global technology. Now you have a better competitor in Visa." Visa forecast that fiscal 2016 net revenue growth will be in the "high single-digit to low double-digit range" and that adjusted earnings per share growth will be "low-end of the mid-teens range".
That was less than what some analysts, including Sanford C Bernstein's Lisa Ellis, expected. The company said currency fluctuations will have a negative impact of 3pc on revenue growth next year.
The Europe transaction includes €16.5bn upfront and as much as €4.7bn more after the fourth anniversary of the deal's completion. The acquisition, which is subject to regulatory approval, is scheduled to be completed in the fiscal third quarter that ends June 30.
Visa expects the deal will add to earnings per share growth beginning in fiscal year 2017 as the company begins to benefit from revenue overlaps and lower costs. The firm said it expects cost savings of about $200m when the two companies are fully integrated by 2020.
Visa Europe is owned by more than 3,000 banks, which means the prices its member lenders pay in network fees is lower than in other regions, Bernstein's Lisa Ellis said.
While that presents an opportunity for Visa to increase earnings, it means it faces short-term risks as it may have to raise prices and will now face competition from smaller rival MasterCard when negotiating deals.