Morningstar | Fidelity National Information Services to Acquire Worldpay in $43 Billion Deal
Narrow-moat-rated Fidelity National Information Services announced its intention to acquire Worldpay in a deal valued at $43 billion including debt. Fidelity will exchange approximately 0.93 shares for every one share in Worldpay and pay an additional $11 per share in cash to Worldpay’s existing shareholders. In total, Fidelity is paying $112, which is more than 24 times 2019 consensus estimates for normalized earnings and an approximately 13% premium to the unaffected share price. We’ll point out that this deal is complicated by Worldpay’s sizable $12 billion merger with Vantiv which closed in January 2018. During the last conference call, Fidelity management clearly telegraphed the company was in the market. We believe this deal was made necessary given Fidelity’s slowing growth. The only bright spot we see is that Fidelity is paying for Worldpay with overvalued FIS shares. Currently, we value Fidelity at $68 per share and the stock trades at more than a 50% premium to our fair value. We’ll be digging deep into the filings of WorldPay and Vantiv to help determine what value, if any, Fidelity may be able to extract from the acquisition. Until we can get a better impression of the ultimate cash generation the combined entity will generate, we will be maintaining our fair value estimate at $68 per share.Our initial impression is that Fidelity will have its work cut out for them to integrate a firm already trying to digest another large company in Vantiv. In its release, Fidelity said it projected $400 million in expense synergies. Given this equates to approximately 9.5% of Worldpay’s revenue, we’re skeptical. Previously, Fidelity had forecast zero top-line growth with GAAP earnings increasing by at least 37% in 2019. We believed the easiest way for Fidelity to hit this hurdle was through some acquisition. In 2018, we lowered our stewardship rating to Poor and worry the proposed acquisition only supports our assessment of management. We’ll remind investors that management has the habit of using highly arbitrary non-GAAP earnings metrics that we regard as misleading. As investors seek to determine the prospects of the combined companies, we would urge caution when evaluating management’s comments.
Fidelity National Information Services is a provider of technology solutions for merchants, banks, and capital markets firms globally. The company's solutions include merchant acquiring solutions; payment solutions; global eCommerce solutions; processing and ancillary applications solutions; digital solutions; fraud, risk management and compliance solutions; electronic funds transfer and network services solutions; card and retail payment solutions; wealth and retirement solutions; item processing and output services solutions; securities processing and finance solutions; global trading solutions; asset management and insurance solutions; and corporate liquidity solutions.
Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The company offer an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors.
Morningstar provides data on approximately 530,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 18 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries and had approximately $185 billion in assets under advisement and management as of June 30, 2016.
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