FIS to Spin Off Worldpay Merchant Services Business Acquired in 2019

FIS is reportedly planning to spin off Worldpay, the merchant services business it acquired in 2019.

The payments giant is apparently looking to undertake a tax-free spinoff of its merchant operations, the bulk of which comes from Worldpay, Reuters reported Friday (Feb. 10), citing sources with knowledge of the matter.

PYMNTS has contacted FIS for comment but has not yet received a reply.

The Reuters report said FIS, based in Jacksonville, FL, could announce the spinoff this week as the company reveals the outcome of a strategic review it conducted last year under pressure from hedge funds D.E. Shaw and JANA Partners.

FIS launched the review in December, PYMNTS reported, as it underwent a change in leadership, as Gary Norcross stepped down as CEO after 34 years with the company. The review reportedly involved a “comprehensive assessment” of the company’s strategy, businesses, operations and structure, with the goal of improving results, shareholder value and client services.

The news comes days after reports that FIS had laid off 2,600 employees and contractors — about 2% of its workforce — in recent weeks.

There are a number of reasons why publicly traded companies could choose to spin off parts of their business.

For example, the parent company can unlock value for shareholders by allowing a subsidiary to be valued and traded separately, leading to higher market valuations. It can also offer tax benefits for the parent company, as the spinoff can create new tax entities that reduce the company’s total tax liability.

In addition, spinoffs let parent companies spend more time focused on their core businesses. And as the Reuters report notes, merchant solutions account for 30% of FIS revenue, while its core banking solutions business makes up about 46%, with capital market solutions making up the rest.

Lastly, spinoffs can simplify a company’s structure, making it easier for investors to understand and value the business. FIS shares have lost more than half their value since the company purchased Worldpay.

FIS’s acquisition of Worldpay came in the wake of payments firm Fiserv’s $22 billion purchase of First Data in January 2019.

That deal launched a competitive battleground by two giant core banking and merchant services businesses, creating two end-to-end global financial services and payments powerhouses that offered new ways for businesses and consumers to transact in a more seamless and cost-effective manner.