Fidelity National Information Services Inc. plummeted after it booked a $17.6 billion writedown on the payment-processing business it bought for $41 billion just four years ago, a unit it now plans to dump.
(Bloomberg) — Fidelity National Information Services Inc. plummeted after it booked a $17.6 billion writedown on the payment-processing business it bought for $41 billion just four years ago, a unit it now plans to dump.
The fintech said it will pursue the tax-free spinoff in the next year, according to a statement Monday. The impairment charge resulted in a $17.4 billion loss in the fourth quarter, the firm said in a separate statement.
“It’s a sign that the acquisition was a huge failure,” Dan Dolev, an analyst at Mizuho Securities who has been calling for a spinoff of the merchant business for years, said in an interview. “When you’re dealing with an ailing business, it’s much better to roll the dice, give it a year and see if you can turn it around and then reintroduce it to the public markets.”
The merchant business has lost market share to both traditional rivals and upstarts alike in recent years. That’s because it’s been tethered to FIS and largely unable to do additional mergers and acquisitions that give it better scale, Chief Executive Officer Stephanie Ferris told analysts on Monday.
“Central to the growth strategy is a return to more consistent M&A,” Ferris said. “As the FIS parent, I can’t feed it the M&A it needs.”
The spinoff is part of Ferris’s broader plan to remake the financial-technology giant. Since taking the reins in December, Ferris has carried out a wide-ranging review of its strategy, businesses, operations and structure. The company has already eliminated 2,600 jobs and now plans to deliver as much as $1.25 billion in cost savings as part of her turnaround efforts.
“We will create two more focused, agile companies that can pursue tailored strategies that are aligned with specific long-term growth opportunities,” Ferris said in the statement. “Both companies will be market leaders in their own right, and we believe that, as separate companies with a commercial relationship, we will deliver a superior outcome.”
In addition to the spinoff, the company also released guidance on revenue and profit that fell short of analysts’ estimates. FIS shares sank 14% to $64.52 at 10:27 a.m. in New York. They have lost 42% of their value in the past year, compared with the 8.9% slump in the S&P 500 Information Technology Index.
Worldpay Acquisition
FIS acquired the bulk of the merchant-payment business when it bought Worldpay Inc. nearly four years ago in a deal that was valued at about $41 billion at the time, according to data compiled by Bloomberg. The business helps nearly 1 million merchants around the world accept payments, processing more than 100 million transactions every day.
The deal was one of three multibillion-dollar payments deals in 2019: Rival Fiserv Inc. acquired First Data Corp. that year, while Global Payments Inc. purchased Total System Services Inc.
Charles Drucker, the former CEO of Worldpay, will rejoin the company as a strategic adviser and will take over as CEO of the business after the spin off, according to the statement. Ferris and Drucker have worked together since the two were at Fifth Third Bancorp’s payment-processing division in the early 2000s.
Fifth Third spun out the division to create Vantiv in 2009. Drucker and Ferris were then senior executives at Vantiv, which merged with Worldpay in 2018, and helped sell the combined entity to FIS in 2019.
“Charles and I feel very confident given this will be the third time we’ll have spun it out, sold it and spun it back out,” Ferris said, noting FIS has no plans to break up the merchant unit before spinning it out. “So we’re really familiar with the cost structures and the benefits that comes with putting it in and taking it out.”
FIS, founded in 1968, has long been known for providing banking and capital-markets technology for thousands of financial institutions. The Jacksonville, Florida-based company employs more than 50,000 people across 50 countries, according to its website.
The company said it now expects revenue to climb as high as $14.45 billion this year, which is less than the $15.1 billion analysts in a Bloomberg survey were expecting. Adjusted earnings per share should reach as high as $6, which is also less than analysts’ estimates.
“FIS’s 2023 outlook came in meaningfully below our and consensus expectations, as feared,” Vasundhara Govil, an analyst at Keefe Bruyette & Woods, said in a note to clients.
(Adds details on market share in fourth paragraph.)
More stories like this are available on bloomberg.com
©2023 Bloomberg L.P.