Earlier this week, fintech firm FIS announced its plans to do a tax-free spin-off of its Merchant Solutions business – Worldpay – within the next 12 months. In the company’s announcement, FIS said they planned to maintain a strong commercial relationship with Worldpay, with whom they merged in 2019
in a deal estimated to be worth $43 billion. The spin-off will create two separate, independent companies. The spin-off will allow FIS to become a simpler, more focused organization that is better positioned to deliver value to shareholders and clients. FIS estimated the spin-off to occur in the next 12 months.
In a February 13, 2023 news release, FIS said the planned separation of the companies would give them “greater strategic flexibility and operational focus” to maximize growth and margin opportunities as markets evolve. Charles Drucker, former CEO of Worldpay, will become a strategic advisor to assist with the separation of the companies and will serve as the CEO of the Merchant Solutions business after the spin-off is complete. At a later date, FIS will announce Worldpay’s board of directors, management team, and headquarters, along with capital allocation strategies for each business, transaction costs, governance and other transaction details.
FIS chairman of the board Jeffrey A. Goldstein commented on the strategic move.
“In evaluating a broad range of alternatives as part of our previously announced comprehensive assessment of FIS’ strategy, businesses, operations, and structure, FIS management and the Board concluded that the spin-off of Worldpay will unlock shareholder value by improving both companies’ performance, enhancing client services, and simplifying operational management,” said Goldstein.
“We are confident that this is the right time for the separation of Worldpay. 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. This spin-off will create two industry-leading, publicly-traded companies with sharper focus and increased agility, each well positioned to capitalize on the significant value creation opportunities ahead in their respective markets,” Goldstein added.
FIS Q4 and full-year 2022 financial results
The announcement was made the same day FIS releases its fourth quarter and full-year 2022 results. Highlights include:
- For the fourth quarter, FIS reported total revenue of $3.7 billion, a 1% increase year-over-year. Revenue included $1.7 billion from Banking Solutions and $1.2 billion from Merchant Solutions, $771 million from Capital Market Solutions, and $48 million from Corporate and Other.
- The company reported a net loss of $(17.4) billion, or $(29.28) per diluted share and a non-cash goodwill impairment charge of $17.6 billion related to Merchant Solutions.
- For the full year, FIS reported total revenue of $14.5 billion, a 5% increase year-over-year. Revenue included $6.7 billion from Banking Solutions, $4.8 billion from Merchant Solutions, $2.8 billion from Capital Market Solutions, and $286 million from Corporate and Other.
- The company reported a net loss of $(16.7) million, or $(27.68) diluted earnings per share.
- In 2022, Worldpay had payments volume of $2 trillion.
“We delivered fourth quarter results consistent with our expectations in our Banking and Capital Markets businesses. Revenues and margins in our Merchant Solutions business came under slightly more pressure than anticipated as a result of increasing recessionary impacts in the UK and a shifting of consumer spend from goods to services in the US,” said FIS CEO and President Stephanie Ferris in a separate February 13, 2023 news release.
“2023 marks a year of recommitment for FIS, recommitting to our strengths in delivering on our cloud-native and digitally-focused solutions encompassing core, lending, risk, payments and trading platforms to help our clients innovate faster and achieve their growth,” Ferris added.
Insider Take
This news surprised us, considering the two companies just merged four years ago. FIS’s financial losses, however, are not sustainable, and this move is clearly strategic. They are separating the two companies so each can find its own path forward to profitability while offering their clients continuity, especially during the 12-month transition time. Based on the announcement, FIS wants both companies to be better positioned to compete in their respective markets.
