Visa Inc the world’s largest payments network, is in preliminary talks to buy former subsidiary Visa Europe Ltd in a deal that may be valued at as much as $20 billion (£12.9bn).
The talks, which began when Visa approached Visa Europe, are at an early stage and could fall apart if the two sides can’t agree on a price, the range being discussed is $15 billion to $20 billion, and both companies are working with advisers Morgan Stanley and J.P Morgan.
Visa and its European counterpart split in 2007 ahead of the U.S. firm’s initial public offering and analysts have been speculating for years that they could merge. Visa Europe is owned by more than 3,000 European banks and some of Britain’s biggest high street lenders are eyeing a windfall that could total more than £4bn from the takeover.
Lloyds Banking Group, Barclays, Nationwide and Royal Bank of Scotland (RBS) will each receive a chunk of that if Visa Inc, the New York-listed company, acquires its European sister. It is believed the UK banks’ shareholding in Visa Europe is at between 25% and 30%, with Barclays alone understood to hold an economic interest in the company of just under 10%.
Visa Europe has a put option, which can be exercised at any time, and requires the US Company to purchase it at an agreed multiple of earnings within 285 days. Meanwhile, Visa Inc has a call option, enabling it to purchase Visa Europe if the company’s performance declines and hits certain thresholds, although the US group describes that eventuality as “remote”.
Visa has said there is a 40 percent chance that Visa Europe would exercise the put, and estimated last month that doing so would cost the Foster City, California-based company more than $10 billion. The final price depends on a complicated formula with a range of variables.
Visa Europe’s owners explored exercising the put option and setting up their own payments business in early 2013, the Wall Street Journal reported at the time.
Visa Europe, which has a licensing agreement with Visa, managed more than 500 million accounts and processed more than 16 billion transactions last year, according to its annual report. It earned 219.8 million euros ($246 million) in 2014, up 29 percent from a year earlier.
Documents suggest that 80% of its board needs to approve the exercise of the put option. The early-stage talks were reported on Friday, sending the US group’s shares up by more than 4%.