Worldpay Sellers Land £730m Visa Windfall

The two private equity firms which recently floated Worldpay on the London Stock Exchange (Other OTC: LDNXF - news) are about to receive another massive payday from a $21bn (£13.6bn) takeover of Visa Europe.

Sky News has learnt that Advent International and Bain Capital could receive more than £700m in proceeds from Visa Europe's sale to its American sister company, Visa Inc (Xetra: A0NC7B - news) , with a deal likely to be announced in the next ten days.

The mammoth payout will come on top of hundreds of millions of pounds that Advent and Bain have already received from the disposal of parts of their Worldpay shareholding.

Under arrangements disclosed in the Worldpay initial public offering prospectus, the two firms will receive 90% of the proceeds from the Visa stake sale.

Worldpay owns 6% of Visa Europe, which equates to a shareholding valued at $1.26bn (£815m).

"With the exception of the 10% interest in the net proceeds from any realisation of the VE [Visa Europe] shares retained by Worldpay, the ordinary shares (of Worldpay) will exclude the economic effect of the company’s interest in Visa Europe, and as a shareholder of the company post-admission you will not be entitled to significant benefit from any acquisition of Worldpay’s interest in Visa Europe," it said.

Sky News revealed in August that a substantial element - which the two sides have now agreed will be 25%, according to insiders - of the $21bn headline price tag is to be deferred and payable over several years according to a range of performance-related conditions which include the Visa Inc share price.

While Worldpay's new institutional shareholders will derive little direct benefit from the Visa Europe stake, they will be exposed to liabilities arising from future legal settlements.

"Several retailers have brought court proceedings in the UK against, or entered into ‘standstill’ agreements with, Visa Europe and other Visa entities in relation to 18 an alleged breach of competition law," the Worldpay prospectus said: "In the event that Visa Europe were to lose any such court proceedings and sought to claim against its members, including Worldpay, and such a claim were successful and this claim was ultimately and materially in excess of the retained amounts, it is possible that Worldpay’s exposure to this potential uncapped liability could have an adverse effect on the group’s business, financial condition, results of operations and prospects."

Visa Inc's takeover of Visa Europe will also trigger big payouts for thousands of European lenders, with British banks the biggest recipients.

Sources have indicated that if a takeover of Visa Europe valued it at £13.4bn, Barclays (LSE: BARC.L - news) ' stake would be worth well over £1bn, with Lloyds' interest worth hundreds of millions of pounds.

Each of the roughly 3,000 lenders which are shareholders in Visa Europe owns a single share in the company, but the economic value of that stake is determined by the volume of business that they conduct through its network.

Previous negotiations about a takeover have met opposition from French bank members of Visa Europe, with their priority being to keep the company independent.

Many European countries have their own domestic debit payment networks, while in the UK the vast majority of debit transactions are handled by Visa.

Lloyds' substantial stake in Visa Europe is partly a consequence of its takeover of HBOS during the 2008 financial crisis.

Under a long-standing agreement between them, Visa Europe has a put option which would oblige Visa Inc to acquire it at a price calculated by a detailed formula.

However, while Visa Inc does not have a formal call option, it is free to make an offer for its European sister at any time and at any price, and it is on this basis that the takeover negotiations are understood to have proceeded.

A $21bn offer would exceed Wall Street's expectations of the price that New York-listed Visa Inc would have to pay to reunite its transatlantic operations.

The company said in April (LSE: 0N69.L - news) that the likely cost of doing so would be more than $10bn, meaning that if a deal is struck on the terms currently under discussion, it would be valued at more than double the originally envisaged sum.

The US-based company confirmed during the summer that talks were underway.

"Visa Inc. believes there is compelling logic for both Visa Inc. and Visa Europe to consummate a business combination and therefore regularly engages in such discussions and is currently in such discussions with Visa Europe," it said.

Visa Inc is keen to reunite its US and European operations for the first time since 2007 in an effort to compete more effectively with rival Mastercard amid a fast-changing payments industry landscape.

Visa Inc was itself part of a global bank-owned association before it became a listed company in 2008.

Buying Visa Europe, which processed more than 16 billion transactions last year, would strengthen its position as the world's biggest payments group at a time when its industry is undergoing radical technology-driven shifts.

Visa Inc is one of several FIFA World Cup sponsors to have openly criticised world football's governing body over its ongoing corruption scandal.

JP Morgan and Goldman Sachs (NYSE: GS-PB - news) are advising Visa Inc on the talks, while its European counterpart is being advised by Morgan Stanley (Xetra: 885836 - news) .

Worldpay, shares in which are up about 10% since they started trading this month, declined to comment.