MasterCard buys Travelex prepaid unit for $459 million
MasterCard Inc is buying a prepaid cash-card business of foreign exchange group Travelex for 290 million pounds ($459 million) in an effort to win business in fast-growing emerging markets.
Travelex's prepaid card business focuses on travelers that use plastic instead of travelers checks. But MasterCard hopes to expand the business to offer cards to consumers in emerging markets that do not have bank accounts and therefore cannot use credit or debit cards.
The deal will be an important driver for our growth in the whole prepaid arena, especially outside of the United States, MasterCard Chief Executive Ajay Banga said during a conference call with investors and reporters on Thursday.
Prepaid cards are one of the fastest growing segments of the payments industry, which shifts trillions of dollars around the globe. Mercator Advisory Group has forecast that funds loaded on prepaid cards will grow to $118.5 billion in 2012 from $36.6 billion in 2010 and MasterCard forecast on Thursday that prepaid volumes would reach more than $840 billion by 2017.
The deal is MasterCard's second effort this year to expand its international and emerging market business, where it has more room to compete against arch-rival Visa Inc.
The Travelex cash passports are seen as more secure and more convenient than traditional travelers' checks, MasterCard executives said. They also allow consumers to lock in good foreign exchange rates when they buy them, instead of withdrawing money during their travel and being subject to currency fluctuations.
MasterCard does not plan to expand the Travelex offerings in the United States, where it already works with dominant prepaid card marketers such as Green Dot Corp and NetSpend Holdings Inc.
There are a lot of strong program managers in the United States, but the fact that this business has such a strong cross-border global footprint means that we can really drive the opportunities outside the U.S., MasterCard Chief Product Officer Tim Murphy told Reuters in an interview on Thursday.
SPENDING ABROAD
The Travelex deal is MasterCard's second bid this year to buy wider access to international markets. It paid $520 million in October for the British online payment services company DataCash and, like Visa, has said it plans to continue looking for acquisition targets.
The Travelex deal strategically makes a ton of sense, but I want to see the financial results play out over time, said Jim Tierney, chief investment officer of money management firm W.P. Stewart, which owns MasterCard shares.
The world's second-largest credit- and debit-card company said the transaction would be 4 cents dilutive to its 2011 earnings per share as a result of amortization and integration costs. Analysts on average expect MasterCard to earn $16.44 per share in 2011, according to Thomson Reuters I/B/E/S.
MasterCard expected the acquisition to be neutral to its earnings in 2012 and accretive in 2013.
It added it could pay an extra 35 million pounds if the business meets certain performance targets.
Morgan Stanley analyst Adam Frisch estimated in a research note that MasterCard would pay 6 to 7 times the Travelex unit's 2010 revenues, compared with an estimated price of 9 times revenues it paid for DataCash.
MasterCard shares were 33 cents higher at $250.97 in early afternoon trading on the New York Stock Exchange.
For Travelex, the transaction provides it with extra cash for its own expansion plans.
The deal will not change the shareholding structure of Travelex, majority-owned by private equity group Apax and often touted as a potential candidate for a listing.
Travelex founder Lloyd Dorfman, who set up the company in 1976, has a significant stake in the group.
Travelex reported a 3 percent dip in first-half earnings in September, saying at the time it was confident its full-year profit would rise from 2009.
Smith Square Partners advised Travelex on the deal; MasterCard did not use advisers.
Separately on Thursday, Travelex said it bought a major holding in South Africa's FX Africa.
($1=.6317 pound)
(Additional reporting by Ben Deighton in Brussels and Simon Meads in London; editing by David Cowell, Maureen Bavdek, John Wallace and Andre Grenon)
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