Last month, Visa (NYSE:V) revealed it was in the process of buying a smallish British payments company called Earthport for 198 million pounds -- about $250 million. Not so fast, said Mastercard (NYSE:MA), which just swooped in and bid 233 million pounds -- about $305 million. That's pocket change for either one -- the smaller Mastercard has a market cap north of $200 billion -- but that doesn't mean it's an insignificant purchase.
In this segment from the Motley Fool Money podcast, host Chris Hill and Fool senior analysts Aaron Bush, Ron Gross, and Jason Moser discuss the reasons why both giants think this acquisition makes sense and weigh whether or not one suitor or another has any advantages.
A full transcript follows the video.
This video was recorded on Jan. 25, 2019.
Chris Hill: In late December, Visa announced the acquisition of Earthport, a British payments company, for roughly $250 million. On Friday of this week, MasterCard announced the acquisition of Earthport for $305 million. Jason, what happened to the deal with Visa?
Jason Moser: It looks like we've got a good old-fashioned bid up, Chris! It's just a matter of who wants it more. Right now, it seems like it's MasterCard. That's a 10% premium to what Visa was offering. Like we said with Visa a month ago with this deal, it's a drop in the bucket for either company. They could acquire this company today, write the whole thing off next year, and nobody would bat an eye. It's ultimately about getting a better cross-border payments business for either Visa or MasterCard. If you look at MasterCard, the cross-border payments volume grew 17% last quarter. Cross-border payments are transactions that involve parties in two or more countries. As we know, those are becoming more prevalent as the world gets smaller and electronic payments continue to grow.
We'll see if Visa wants to counter MasterCard's bid there. It seems like, at least, the board with Earthport was a bit more on board with being a part of the MasterCard family. But we will see. Either way, you can't be a loser if you're in either one of those two networks.
Hill: Can I just say, Earthport is a stand-alone public company, and a month ago, it was about $7 a share. Now, it's about $36.
Moser: That's a very good point to note.
Hill: It's good to be an Earthport shareholder.
Moser: Well, it is now. It wasn't about two months ago because the E.U. is tightening down on these regulations. It's going to make these cross-border transactions less profitable. Earthport was stuck between a rock and a hard place. For them to get in a nice little situation like this with two companies competing for them, that's just icing on the cake.
Chris Hill has no position in any of the stocks mentioned. Jason Moser owns shares of Mastercard and Visa. The Motley Fool owns shares of and recommends Mastercard. The Motley Fool owns shares of Visa. The Motley Fool has a disclosure policy.