By Sudip Kar-Gupta and Gwénaëlle Barzic
PARIS (Reuters) - Payments company Worldline agreed on Monday to buy French rival Ingenico <INGC.PA> in a 7.8 billion euro ($8.7 billion) deal, creating a European leader in a sector trying to keep up with fast-changing consumer habits and technologies.
The growing use of smartphones for online payments, including through Apple Pay <AAPL.O> or WeChat <0700.HK>, is sparking competition in the industry to develop new, adapted processing systems, often requiring large investments.
The purchase by Worldline, which was born out of French IT company Atos <ATOS.PA>, follows a wave of mergers and acquisitions last year among U.S. rivals also looking to try and build up their share of digital transactions.
Firms in the sector provide everything from the card terminals found in shops to broader services such as transaction security for retailers and banks, and many now want to be present across the whole payment chain.
"We're likely to see more consolidation," Worldline Chief executive Gilles Grapinet told reporters, adding that it was an industry with cost advantages for those operating on a large scale.
The takeover of Ingenico gives the firm an implied equity value of 7.8 billion euros and would immediately boost Worldline's earnings per share, with around 250 million euros expected in savings by 2024.
The price tag implies a premium of about 16% to Ingenico's closing market value on Friday of around 6.7 billion euros.
Asked about any potential anti-trust regulatory hurdles, Grapinet said the transaction was expected to close "rapidly", in the third quarter of 2020.
The global payments industry is set to reach $3 trillion a year in revenue by 2023 as more people switch from cash to digital payments for online and store purchases, according to research by consulting firm McKinsey.
In 2019, Fiserv Inc <FISV.O> bought First Data Corp for $22 billion, while Fidelity National Information Services (FIS) <FIS.N> bought Worldpay for about $35 billion, consolidating their positions as the top two players globally.
INGENICO SHARES SURGE
Shares in Ingenico - which was long seen as a target and drew interest from Edenred <EDEN.PA> and French bank Natixis <CNAT.PA> last year - were up 12.7 by 1243 GMT, while those of smaller rivals like Italy's Nexi <NEXII.MI> also rallied on Monday amid talk of more sector consolidation.
Worldline shares pared earlier losses but were still 2.6% lower, reflecting some concerns that it is paying a hefty premium to buy Ingenico.
On closing the deal, former Worldline shareholders would own 65% of the combined entity and former Ingenico shareholders would own 35%. Worldline boss Grapinet would become CEO of the combined company and Ingenico Chairman Bernard Bourigeaud would become non-executive chairman.
Ingenico shareholders would receive 11 Worldline shares and 160.5 euros in cash for seven Ingenico shares, in a primary tender offer. There would also be a secondary offer, with 56 Worldline shares exchanged for 29 Ingenico shares, translating into an offer price of 123.10 euros per Ingenico share.
Worldline, in which Atos still has a 16.9% equity stake, said the deal would give it access to Ingenico's strong presence in the travel, health and retail sectors, while the combined company would have also have an extended partnership with German savings banks.
The Ingenico division housing its card terminal business, one area where it has struggled more in recent years, will undergo a strategic review, Worldline's Grapinet said.
Creating a European champion able to compete with bigger American rivals could be welcomed by European politicians.
"The local tie up by Ingenico and Worldline makes sense so instead of competing with each other in their domestic space the combined company can focus on bigger fish to fry," said MB Capital managing director Marcus Bullus.
Atos welcomed the deal and said it could continue to sell down its stake in Worldline.
BPI, a state-backed French bank with a 5% stake in Ingenico, will look to bulk up its holding in the combined entity so that it remains around that level, a source close to the deal said.
BPI was not immediately available to comment.
Morgan Stanley <MS.N> and Cardinal Partners were the financial advisers to Worldline, while Goldman Sachs Paris <GS.N> and Rothschild <ROTH.PA> advised Ingenico.
($1 = 0.9014 euros)
(Reporting by Sudip Kar-Gupta; Additional reporting by Gwenaelle Barzic; Editing by Edmund Blair, Mark Potter, Kirsten Donovan)