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Visa Plans to Repurchase Visa Europe

On Monday, November 2, Visa announced its plans to acquire its former European Unit, Visa Europe Ltd., for as much as $23.3 billion. ((Chad Bray, Visa to Buy Back Former Europe Unit for Up to $23.3 billion, The New York Times (Nov. 2, 2015), http://www.nytimes.com/2015/11/03/business/dealbook/visa-to-buy-back-former-europe-unit-for-up-to-23-3-billion.html?ref=topics.)) The main objectives of the deal are to increase Visa’s international reach and to compete with MasterCard, its main competitor, who is already integrated in Europe. ((Id.))

The two companies were previously one entity, but split in 2007 prior to Visa’s initial public offering in the United States. ((Elizabeth Dexheimer, Visa Surges as Firm Sees Visa Europe Deal Possible This Year, Bloomberg Business (Jul. 23, 2015), http://www.bloomberg.com/news/articles/2015-07-23/visa-profit-beats-estimates-as-consumer-spending-increases)) Since the split, over 3,000 European banks now own Visa Europe. ((Id.)) The European company has operated under a licensing agreement with Visa, managing roughly 500 million accounts and processing over 16 billion transactions in just 2014 alone. ((Id.))

Following Visa Inc.’s IPO in the U.S., Visa Europe was given a put option that would allow it to force a repurchase by the parent company ((Marcin Sobczyk, Andrew R. Johnson and Dana Cimilluca, Visa May Have to Buy Europe System, The Wall Street Journal (Mar. 19, 2013) http://www.wsj.com/articles/SB10001424127887323415304578370271611334206.)) In early 2013, the European banks that own Visa Europe considered using the put option to sell their shares in the company ((Id.). The decision to exercise would have cost Visa Inc. anywhere from $3 to $11 billion. ((Id.)) Visa Europe did not have complete control of its own destiny, however; while its put option gave it the right to sell at its own discretion, the American parent also held a call option, which gave it the power to purchase Visa Europe ((Id.))

Though Visa Europe declined to exercise its put option in 2013, by early 2015 rumors of a reunion emerged once more. ((Michael J. de la Merced, Visa and Visa Europe Are Said to Consider Reunification, The New York Times (May 8, 2015), http://www.nytimes.com/2015/05/09/business/dealbook/visa-and-visa-europe-are-said-to-consider-reunification.html?_r=0.)) In its third quarter earnings report, Visa Inc. stated that it “believe[d] there [was] compelling logic for both Visa Inc. and Visa Europe to consummate a business combination,” and that it was “regularly [engaging] in such discussions” with Visa Europe. ((Visa Inc. Reports Fiscal Third Quarter 2015 Earnings Results, Investor.Visa.com, http://investor.visa.com/news/news-details/2015/Visa-Inc-Reports-Fiscal-Third-Quarter-2015-Earnings-Results/default.aspx (last visited Nov. 2, 2015)). This week, the two companies finally reached the $23 billion agreement. ((Bray, supra note 1))

Interestingly, the deal is an all-cash transaction, with roughly 75% to be paid up front and the remainder four years later. ((Id.)) The newly combined company is expected to have upwards of $15 billion in revenue and almost 3 billion debit and credit cards issued ((Id.)) The companies now look forward to obtaining regulatory approval to move forward with the deal ((Id.))

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Andrew Smith

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