Global Payments (NYSE:GPN) shareholders can breathe a sigh of relief.
The credit card transaction processor has finally found a buyer for its money transfer business. The sale, long in the making, essentially amounts to the removal of a growth-sucking leech from the rest of the company.
Pending regulatory approval and license transfers, Global will sell the money transfer unit to a private equity firm for a price between $85 million and $110 million, with the precise amount to be pinned down at closing based on its operating performance.
As a result, management expects fiscal-year earnings per share from continuing operations without money transfer to come in between $2.31 and $2.42. That range is lower by about 5% than originally anticipated. Although the company's stock has fallen since the announcement, I think the long-run benefits will more than make up for the short-term pain.
Concentrated focus
While guidance is lower than it was previously, Global made the right decision in getting rid of the business. In terms of revenue contribution, the importance of Global's money transfer segment has been dwindling for some time.
Additionally, the private equity buyers will now assume the burden of fending off competition from niche monster Western Union (NYSE:WU), which was arguably an unwinnable fight from Global's standpoint.
Western Union attracts a globally diversified revenue stream, which totaled more than $5 billion in the past 12 months. It has boatloads of cash on its balance sheet that it can spend toward cementing its place at the head of the class in money transfer. In comparison, Global's presence in the industry was more of a sideshow than anything else, as it did little more than distract the company from its breadwinning card transaction processing activities.
That's the way you do it
Global's core business has terminals all over the world, which allow merchants to accept credit cards and process transactions from one or many different card companies.
When you pay with plastic, whoever you're buying from pays a number of fees. Merchant acquirers pocket a portion of the fee, with the remainder getting split between the card companies, like Visa (NYSE:V) and MasterCard (NYSE:MA), and the banks that issue the cards, like JP Morgan Chase (NYSE:JPM) and Citigroup (NYSE:C).
Visa and MasterCard both farm out merchant acquisitions to third parties like Global, but they have an interest in setting up merchant terminals in untapped markets. That essentially lets acquirers like Global step in after much of the grunt work has already been done. With its deadweight money transfer business out of the way, Global can solely focus on its most profitable core business.
Who has the best deal in the credit card business: merchant acquirers, card networks, or bank issuers? Let me know what you think in the comments section below.
