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Jul 5, 2017

U.K. payment processing firm close to takeover by U.S. rival

Traders wait for news at the post where U.S. credit card technology firm Vantiv Inc is traded

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U.S. credit card processor Vantiv agreed to buy Britain's Worldpay for 7.7 billion pounds (US$10 billion) on Wednesday in a move expected to trigger further deals.

Payments companies have become targets for credit card companies and banks seeking to capitalize on a switch from cash transactions to paying by smartphone or other mobile device, with Danish payment services firm Nets A/S revealing it had been approached by potential buyers.

Shares in Worldpay rose by nearly 28 per cent on Tuesday when Britain's largest payments firm said it had received approaches from both Vantiv (VNTV.N) and JPMorgan (JPM.N), which is Worldpay's corporate broker.

The U.S. bank said that while it had shown a preliminary interest, it does not plan to make a rival bid.

"Given the current price, strategic rationale for Vantiv and lack of significant EPS (earnings per share) accretion we believe it is unlikely other suitors will emerge at this point," analysts at Cowen said following the announcement of the deal.

Under the terms revealed on Wednesday, Vantiv will pay 55 pence in cash, 0.0672 of a new Vantiv share and a 5 pence cash dividend per Worldpay share, totaling 385 pence per share.

Although this is an 18.9 per cent premium to Worldpay's closing share price on Monday, it is below the 409.5 pence hit on Wednesday before the announcement, which comes only 20 months after Worldpay listed in London with a 4.8 billion pound price tag.

Worldpay's stock was down 9.3 per cent at 370 pence at 10:25 ET while Vantiv, which has a market capitalization of US$12.3 billion, saw its shares fall 3.9 per cent to US$60.51.

Shareholders in the British firm will own about 41 per cent of the new company, which will be run by Vantiv Chief Charles Drucker and Worldpay CEO Philip Jansen.

Set up in 1989, London-based Worldpay was spun out of Royal Bank of Scotland to private equity firms Bain Capital and Advent International in 2010. The firm employs 4,500 people, and says it processes around 31 million mobile, online and in-store transactions every day.

While banks have been trying to develop and buy more sophisticated technology, companies like PayPal (PYPL.O) and Worldpay have gained a large market share as consumers have adopted online shopping and cashless transactions.

GLOBAL APPEAL

Analysts say the most likely target is Worldpay's e-commerce business, especially outside the United States where Vantiv is largely focused. Worldpay says it supports 400,000 merchants in 126 currencies across 146 countries.

"While Vantiv owns one of the most enviable U.S. acquiring businesses - over 30 percent of revenue from integrated channels - it has no exposure outside of North America," Cowen analysts said.

Worldpay's e-commerce payments revenue, which accounts for more than a third of its total, rose by 21.7 per cent to 386.6 million pounds in 2016, driven by new business wins and strength in its global retail and digital content units.

Analysts at Berenberg said before the announcement that Vantiv - as well as JP Morgan, is suffering from excessive exposure to the offline U.S. market.

"The acquisition of Worldpay would give them international e-commerce capabilities that they would be able to cross-sell to their U.S. client base."

Increased exposure to the United States would also help Worldpay, which reported a lower than expected rise in 2016 revenue, hurt by weakness in its American business which accounts for more than a quarter of its revenue..

"Worldpay would gain scale in the U.S. market, a geography where frankly the company has floundered relative to rivals," Cowen analysts said.