Banking and payments processing conglomerate Fidelity National Information Services Inc took a $17.6 billion write-down on its merchant business as it unveiled plans on Monday to spin it off, undoing a $43 billion acquisition that went sour.
FIS built its merchant business, which processes transactions for companies, on the back of its $43 billion purchase of WorldPay four years ago. New financial technology startups have since eroded its market share and challenged its profitability.
“The pace of disruption in payments is rapidly accelerating, requiring increased investment in growth and a different capital allocation strategy for our merchant solutions business,” FIS Chairman Jeffrey Goldstein said in a statement.
FIS said in the statement it planned to spin of Worldpay in the next 12 months into a separate company that will be owned by its shareholders on a tax-free basis, confirming a Reuters report published on Friday.
Shares of FIS, which have lost more than half their market value since the company bought Worldpay, plunged about 15% to $64.30 on news of the write-down, giving it a market capitalization of about $38 billion.
FIS, which has been under pressure to explore strategic options from activist investors D.E. Shaw Group and Jana Partners, also forecast 2023 profit below market estimates on Monday. FIS forecast 2023 profit between $5.70 and $6 per share, much below analysts’ expectations of $6.57 per share, according to Refinitiv IBES data.
Charles Drucker, the former CEO of Worldpay, will lead the merchants business after it is spun out, FIS said.
On a conference call with analysts, CEO Chief Executive Officer Stephanie Ferris said the separation would free up Worldpay to pursue growth strategically through more M&A – something the unit was unable to do under the FIS umbrella as its business was inextricably tied to the parent company.
“Central to the growth strategy is a return to more consistent M&A,” said Ferris, who took over as CEO in December and launched a broad strategic review of FIS’ operations. “We do believe having a different capital allocation for that business will enable M&A that we just cannot feed it inside the (FIS parent).”
FIS, which was started in 1968 and counts big corporations in the financial services industry as its customers, has cut thousands of jobs since the review was launched and plans to deliver costs savings of over $1 billion as part of the broader efforts to reshape the business.
The separation of Worldpay would leave FIS with a core processing systems business, enabling transactions among banks and other financial institutions, as well as its capital markets division serving investment firms.
Merchant solutions makes up about 30% of FIS’ revenue, while its banking solutions arm constitutes about 46%, and capital market solutions the remainder.
In a separate statement, Jana Partners backed FIS’ move to spin out Worldpay.
“We welcome the decisive actions taken by the company and believe separating the merchant business with Charles Drucker as CEO, increasing savings targets, and aligning compensation with performance are the right steps to unlock shareholder value,” said Scott Ostfeld, managing partner at Jana Partners.