Visa Buying Visa Europe is a Catalyst for Further Price Appreciation & Dividend Growth

In the 11th issue of the AMM Dividend Letter we highlighted the buying of Visa Europe as a potential catalysts for further price appreciation and dividend growth for Visa (V). Visa Europe would provide further transaction volume growth and Visa could greatly enhance Visa Europe’s profitability.

Integrating the two systems and transferring Visa Europe users over to Visa’s network would take time but the profits are worth it. Europe is seeing the same type of growth in the use of debit cards, credit cards, and smartphones as discussed above and payment volumes are expected to reach $3.73 trillion by 2016. Visa would greatly benefit by having this growing transaction volume over its network and not on a licensee’s. Also, Visa Europe’s operating margin is around 23% compared to Visa’s 62%. Even though European financial regulations will make it tough for an integrated Visa Europe to reach 62% operating margins there is still a lot of room for margin improvement and increased profits for Visa.

Last Friday it was reported that VIsa is in preliminary talks to buy Visa Europe.

Visa Inc., the world’s largest payments network, is in preliminary talks to buy former subsidiary Visa Europe Ltd. in a deal that may be valued at as much as $20 billion, people with knowledge of the matter said.
The talks, which began when Visa approached Visa Europe, are at an early stage and could fall apart if the two sides can’t agree on a price, said the people, who asked not to be identified because the negotiations are private. The range being discussed is $15 billion to $20 billion, the people said. Both companies are working with advisers, they said.

Financing is not an issue, Visa has plenty of room on its balance sheet to fund this acquisition. Visa has tried to buy Visa Europe before but talks broke down because Visa has to deal with so many interested parties.

Sources:

AMM Dividend Newsletter Volume 11: Visa’s Dividend, For Everywhere You Want to be in Retirement (AMM Dividend Letter)

Visa Said in Talks to Buy Visa Europe for Up to $20 Billion (Bloomberg)