Report

Worldpay : Implications of the offer of Vantiv on Worldpay

Worldpay and Vantiv finally announced that they have reached an agreement in principle on the key terms of a potential merger of the two companies. The ordinary shareholders of Worldpay would receive for each ordinary share in Worldpay: i/ GBP 0.55 in cash and ii/ 0.0672 new Vantiv shares. Worldpay shareholders would also be entitled to a cash dividend of 5 pence per Worldpay share, in place of any anticipated interim dividend payment to be declared and approved by the Board of Worldpay by the time of Worldpay's H1-2017 results. - The offer (cash & equity components + dividend) therefore implies an equity value for Worldpay of GBP 7.7bn (or USD 9.9bn) and an enterprise value of GBP 9.1bn (or USD 11.7bn). - Following completion of the potential merger, Worldpay shareholders would own approximately 41% of the share capital of the combined group on a fully diluted basis. - In our view, the two groups are complementary geography-wise and business-wise (you will find more details about this in the report). On the financial front, we welcome the financing mix of the transaction since the cash component is only USD 1.6bn out of a total equity value of USD 9.9bn. Vantiv can therefore take control of a player with a similar size (and quite similar leverage!) thanks to a significant share-swap component. In our calculations, the combined entity’s FY-16 pro forma Net debt / Ebitda ratio would be 4.5x (vs 3.2x for Worldpay stand-alone and 3.7x for Vantiv stand-alone). While the financial risk profile in S&P’s matrix would stay the same as that of Worldpay stand-alone (i.e. “aggressive”), the business risk profile could be improved by one step to “significant”. On that basis, the rating of the new entity could either stay the same as that of Worldpay (BB) or gain one notch to BB+. - The poison put on Worldpay’s 2022 bonds has no value in our view (put price of 101% vs. a current market price of 110%). Note that the bond is not callable before August 2022. Only the make-whole or a tender offer could allow Vantiv to acquire the bonds if it wishes. But the make-whole is expensive (117.5% of early redemption price according to our calculations). We do not think that it is in Vantiv’s interest to exercise this option for now when comparing the interest expenses savings through the refinancing of the Worldpay 3.75% 2022 bond and the make-whole price. Vantiv has no bond outstanding on the market but its term loan in USD maturing in 2023 has an interest rate of Libor (floor of 75 bp) + a margin of 225 bp. Besides, if we assume a refinancing on the euro bond market with a maturity in 7-8 years (2024-25), one can observe that the average ytw of peer bonds is 2.7% for bonds rated BB and 2.2% for bonds rated BB+. Thus, maybe the new entity could issue debt at a rate of 1 to 1.5 percentage point below the coupon of Worldpay bond but this might not justify in our view the repurchase of the existing bonds at the make-whole price of 117% (not to mention the issuance costs of a new bond). - Still, we maintain our Buy recommendation on Worldpay 2022 bonds. The pro forma credit profile of the combined entity will at least be similar to Worldpay stand-alone and the bonds still offer a ytm of 1.7%, while the average ytw for bonds maturing in 2022-23 in the BB+ space is 1.6%. Plus, investors could consider the make-whole as a “free option” (but still a bit “out of the money” in our view for now). - >
Underlying
Worldpay Group PLC

Provider
Oddo BHF
Oddo BHF

​Oddo Securities provides securities brokerage and research services. The company offers equity, economic, and derivatives research and credit analysis services. It focuses on insurance, automotive, building materials, pharmaceuticals, telecommunications, information technology, and agri-food industries.

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