news/FISV/2023.02.13/FIS takes $17.6 billion hit in merchant unit to be spun off.txt

Feb 13 (Reuters) - 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.FIS said in the statement it planned to spin off 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, closed down
12.5% at $66 on Monday, giving it a market capitalization of
about $39 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.Last year, D.E. Shaw and Jana urged FIS to undertake a
review of its operations, pointing to a significant discount in
its share price to peers such as Fiserv Inc and Global
Payments Inc. Jana also pushed the company to accelerate
previously announced changes to its top management.FIS caved into the activists' demands in December when it
unveiled a wide-ranging strategic review of its operations and
named Stephanie Ferris as the new leader of the company,
replacing Gary Norcross, who spearheaded the Worldpay
acquisition.Charles Drucker, the former CEO of Worldpay, will lead the
merchants business after it is spun out, FIS said. Ferris and
Drucker have worked together closely for several years, going
back to the early 2000s when they first crossed paths at Fifth
Third Bancorp.Drucker, a long-time veteran of the financial services
industry, previously also worked at the Fifth Third spin-off
Vantiv, and then at Worldpay after it merged with Vantiv. He
played a key role alongside Ferris in selling Worldpay to FIS in
2019, leaving the company shortly after the deal closed.On a conference call with analysts, CEO 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."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),” said Ferris.Some analysts questioned the decision to carve out Worldpay,
blaming FIS' woes on the poor integration of the merchant
business rather than the logic of the combination."FIS’ recent issues stem more from operational missteps and
that the strategy behind the combination was not necessarily
flawed from a long-term perspective," Morningstar analysts wrote
in a note to clients on Monday.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 $1.25 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."On the positive side, following the spinoff, FIS will
return to being primarily a bank tech provider. This business
while lower growth, is relatively predictable and stable, and we
believe this segment has the strongest moat among FIS’
businesses," Morningstar added.FIS follows other large conglomerates, including General
Electric Co, Johnson & Johnson, Kellogg Co
and Toshiba Corp, who have broken up their sprawling
empires over the past few years amid pressure from investors to
become leaner and focus on enhanced profitability in some of the
core businesses.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.
(Reporting by Niket Nishant, Anirban Sen and Milana Vinn;
Additional reporting by Anirban Chakroborti in Bengaluru, David
French and Svea Herbst-Bayliss in New York; Editing by Devika
Syamnath, Lisa Shumaker and Lincoln Feast.)