FIS, Worldpay Slide Post-Deal as Wall Street Downgrades

(Bloomberg) -- Shares of Fidelity National Information Services Inc. and Worldpay Inc. fell in early Monday trading, as investors and analysts keep digesting the implications of the international payments sector’s biggest-ever deal.

Several analysts cut their recommendations on Worldpay, including BMO, Cowen, KeyBanc, KBW, and Mizuho. They cited the “no-shop” provision and high breakup fee as deterring other bidders.

FIS got a downgrade, to hold, from SunTrust, too. Analyst Andrew Jeffrey still doesn’t like the transaction, calling it “one deal too far.” Although he sees a strategic rationale for buying Worldpay, FIS is “paying at best a fair price,” and will need “meaningful revenue synergies to achieve its long-term organic top-line goals.” FIS trades at a 10 percent premium to Fiserv Inc., and he wonders if Worldpay’s fourth-quarter results were “a high-water mark.”

With a market cap of about $70 billion, FIS-plus-Worldpay will be one of the largest global payments players, trailing only Visa Inc., Mastercard Inc., PayPal Holdings Inc., and American Express Co., MoffettNathanson’s Lisa Ellis writes in a note. It’ll be bigger, but, she asks, will it be better?

Ellis thinks it may “achieve, but not necessarily significantly over-achieve,” expected Ebitda targets; it may be hard to beat cost goals, since Worldpay is still working on savings from the Vantiv deal, and revenue targets may be tough, as they’ll require business extensions instead of “usually-more-straightforward cross-selling opportunities.”

Ellis also flags a “wildcard possibility that Chase may attempt to counterbid for Worldpay,” as JPMorgan Chase & Co. had previously bid on Worldpay, during its prior merger with Vantiv.

PayPal is likely to go for more M&A and partnerships, too, she added. That would be on top of its MercadoLibre Inc. investment, which competes indirectly with Worldpay for global e-commerce, and which may trigger moves from companies including Stripe Inc., Adyen NV, Square Inc., Shopify Inc., or Amazon.com Inc.. There may also be deal activity in the B2B payments market, involving firms such as FleetCor Technologies Inc., WEX Inc., AmEx or Discover Financial Services.

FIS shares were down 2 percent in early trading; Worldpay was also dropping about 2 percent, the most since March 4.

What Bloomberg Intelligence says

“Fidelity National’s offer for Worldpay seems steep and we have less confidence in its ability to achieve assumed revenue synergies than we do in Fiserv’s targets for its acquisition of First Data.”-- David Ritter, senior fintech analyst-- Click here for the research

(Updates share trading in first and eighth paragraphs.)

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