By Niket Nishant
(Reuters) -Fidelity National Information Services is selling a 55% stake in its merchant business to private equity GTCR for $11.7 billion as the payments processor looks to reduce its debt amid growing pressure from investors.
The deal that valued the unit, Worldpay, at $18.5 billion comes after FIS was compelled to launch a strategic review in December by hedge funds D.E. Shaw and Jana Partners.
FIS built its merchant business that processes transactions for companies when it acquired Worldpay for $43 billion in 2019.
But new financial technology startups ate into its market share, prompting it to consider a spin-off of the unit in February after taking a $17.6 billion write-down.
Analysts have said under-investment and operational missteps led to the unsuccessful integration of Worldpay with FIS, which will be left with $10-billion debt after the deal closes. As of March end, the company had a total debt of $20 billion.
“(The deal) cleans up legacy FIS, reviving the story of a stable, high-margin, mid-single-digit grower and reduces share-loss narrative overhang,” Mizuho Securities USA analysts led by Dan Dolev said.
The payments processor said on Thursday the proceeds from the deal will also be used to buy back shares.
Jefferies analysts said the deal amount was $1.8 billion lower than what they had expected. FIS shares were down 2.5% at $58.35.
GTCR has also committed an additional investment of up to $1.25 billion in Worldpay, which will be led by Charles Drucker, its former CEO.
A financial services industry veteran, Drucker has worked at the Fifth Third Bancorp spinoff Vantiv. Drucker and FIS CEO Stephanie Ferris have worked closely for years, going back to the early 2000s when they first crossed paths at Fifth Third.
He played a key role in selling Worldpay to FIS in 2019, leaving the company shortly after the deal closed.
The stake sale on Thursday would leave FIS with a core processing systems business, enabling transactions among banks and other financial institutions, as well as its capital markets unit that serves investment firms.
Reuters had earlier this week reported that the private equity firm was in advanced talks for a majority stake in the merchant business.
Goldman Sachs, J.P. Morgan Securities and Centerview Partners advised FIS on the deal, which is expected to close in the first quarter of 2024.
JPMorgan Chase, Goldman Sachs, Citigroup, Wells Fargo, Deutsche Bank Securities and UBS Securities are providing debt financing, GTCR said.
(Reporting by Niket Nishant and Manya Saini in Bengaluru; Editing by Arun Koyyur)
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