Applied Corporate Finance  - Task 2

(a) The Global Business and its leaders are now crossing boundaries to attract new customers; the online transactions have seen a rise of more than 500 times over the recent years. More & more players have started entering in this segment. In mid-2019, the US online payments giant Global payments made a deal to another US payments company named Total systems services (TSYS) for $ 21.5 Billion, the new company will be called Global Payments Inc. The CEO and member of the Board of Directors of Global payments, Jeffrey S. Sloan announced the merger of two companies where Global payment will buy 52% stake in TSYS for an all-stock deal (Sloan 2019). The target of this merger is to be the leading player in the payments solution provider. The merged companies although having the same business but serving different segments are now set to join hands; Both the companies bring in together best business practises and unmatched quality services to its customers for a combined period of 89 years of continuous services. Both the companies have well-penetrated markets and customer base in its respective fields. TSYS had a turnover of $ 4 billion and successfully processing 32.3 billion financial online transactions annually which shows that TSYS completes a staggering approx. 0.08 billion transactions daily (Sloan 2019). This shows that the company has a good customer base and has a good reputation in the market as a payment solution provider. TSYS is more of an end-user solution provider.

Global payments also have a turnover of $ 4 billion in its respective business. Its customer base includes more of B2B clients. The combined turnover of the newly merged company is likely to cross $ 8-10 billion in coming years which will place them as one of the market leaders in their segments.

The newly merged company will expand the horizon and scope of payment services and open up new business avenues. The merged company will have greater excess to untapped areas & each other clients base. The increased cash flows can be invested in new business opportunities (Sloan 2019). The surge in share prices of TSYS shows that the company's shareholders are excited with the merger. The risk in this payments business is huge and its also increase due to various currencies, platforms(mobile, desktop, laptops & iPad etc.), networks & different applications. The number of transactions is huge and very fast happening. The entire transaction can just take a few seconds or just a mouse click away. The security of payment companies is the major challenge. Both the companies will benefit from the merger as the combined Board of directors will work together to enhance business. The new company Global Payment Inc. will now have six directors from each company. The combined company Global Payments Inc. will have better credit ratings and will enjoy better efficiencies in terms of Cost, employees, Leadership, strategy making and resource sharing. Existing CEO Jeff Sloan of Global Payments will be the new CEO of the company while CEO of TSYS Troy woods will be the chairman of the newly formed Board of directors.

The combination is the third-largest in its segment and will pave way for more mergers and combinations. Following other benefits will reap out of this merger:

1. Expansion of business in Software making markets & bigger customer base.

2. Combination of Business core practises, work culture and ethics.

3. Enhanced & Bigger Financial Independence of the merged company.

4. Increased value addition of shareholders.

5. Better Governance & leadership.

(b) Classification of The Type of The Takeover

This takeover among companies has been done in exchange for shares. There is no payment in cash or its equivalents. Global Payments will buy 52% share in TSYS and pay them with shares in Global Payment. The share exchange has been approved by both companies board of directors unanimously. The shares of Global Payments are more worthy than those of TSYS. Global payments in quest of consolidation and in giving competition to payment companies like PayPal & Square had entered into this merger. Other companies like National Fidelity Information services have announced that it will buy World pay for $ 35 billion (Global payments 2019). A second major deal is Fiserv buying First data for $ 22 billion. Global payment & TSYS deal is considered to be the third-largest deal in payment technology in 2019. The market capitalization of Global Payment Inc. is $52.36 Billion (Global payments 2019). Global Payments is the leading player in the USA providing business solutions to various entities. To show the major players in the financial payment business below is a chart of companies with major capitalization worldwide. The payment technology business is one of the most innovative and technology-driven sectors which requires the use of best business practices and cutting edge technologies. Global payments have all the specialities incorporated in it.

(c) Benefits of This Takeover Deal

Global payments are the leading worldwide name in providing payment technology and software services while on the other hand, TSYS is providing innovative payments to e-commerce companies & merchants. The merged company will be able to utilize each other's expertise into the business. With players like Visa, Master-card, PayPal in the market, there is big competition in the market and to combat the competition, every company needs to provide the best services and security to its users. As per the estimations, synergy will be achieved in 3 years.

This deal is beneficial to the shareholders of TSYS as they get 0.8101 against one share held in TSYS which is approx 20% premium to the share value of TSYS. Global payments will hold 52% shares of TSYS and the remaining 48% shares will be with existing TSYS shareholders. The stock price of TSYS $99.62 dated 23 may 2019 was taken at 20% premium i.e. $119.86 and offered to shareholders of 52% opting for the merger (Global payments 2019). The company provides payment and software solutions to mid-size merchants, 1300 financial institutions which are expanding over 100 countries. Its card-holders customer base is up to 600 million worldwide. Global Payments Inc. Estimates that the merged company will process more than 50 billion transactions annually (Allison 2019).

The deal is said to increase the earnings of shareholders in the coming years. The combination is estimated to save costing around $300 million primarily by combining businesses, go to market planning, streamlining technology set up, eliminating corporate culture & operational hurdles and utilizing scale efficiencies. The combined customer base of each company can be reached out well and more business opportunities will emerge now.

(d) Cost, the NPV of the Merger and The Post-Merger Price

Below is abstract of financial data of Global Payments Inc pre and post-merger. The cost of the merger is $ 21.5 billion. This is paid through the exchange of shares. The revenue of the combined company has increased which will gradually increase in the coming years as the merger itself took place in mid-2019 (Adams 2019). The efficiencies will start coming from the year 2020 and post periods.

It is not possible to calculate discount rates arising out of the merger and predict the period of cash flows, we can’t safely calculate the NPV of the merger. However, we have tried to explain the NPV formula.

The formula of NPV is as follows: Present value of future cash flows arising out of the merger. if the present value of incremental cash flows arising out of merger exceeds the value paid for the merger, then the merger is considered to be viable and vice versa.

NPV= Future cash flows/ {(1+dis rate)^}

Value of merger: NPV of cash flows- the price paid for the merger.

So if the PV of cash flows of merger exceeds $21.5 billion, then the merger will be considered as viable and fruitful for the parent company.

Applied Corporate Finance - Task 3

The Global payment company made this deal at an all-share deal which means that the company did not have to pay anything cash or its equivalents. The company paid the purchase considerations all in shares of its company. The company purchased a 52% stake in TSYS Company to hold a majority share in the company. The company did not require any additional capital to finance this deal (Fuscaldo 2019). The company had proposed a resolution in front of the Board to decide on whether to go for the deal or not. The Board of directors unanimously voted in favour of this deal. Hence the shares of the Global payments were offered to TSYS shareholders at 20% premium to make the deal exciting for the TSYS shareholders.

For any mergers, it is important to know what are we getting and what shall be total outflow. The all-share deal is a double sword as it can disrupt the operations of the parent company. The merger should be smooth and parallel with current business operations. The company chose equity method of raising capital to finance the merger. The parent company has paid a 20% premium to the shareholders which are a non-cash burden to the company. The company has to increase its equity share capital in its books which requires necessary approvals from the board and the regulatory bodies. The company rather than giving any cash to the shareholders gave away a premium of 20% on the existing share price of TSYS i.e. $ (119.86-99.62) = $ 20.24. One critical part of an all-share deal is that the company voting rights are diluted and the company's ownership is parted away (Allison 2019).

Out of four methods of financing namely Debt, Equity, Internal Financing and hybrid (mix of all), every method is unique and has its own advantages and disadvantages. The company should consider factors like Cash & bank balances, Amount of reserves & surplus in the company, existing debt & company interest on debt-paying capacity, diversion of ownership and other future plans & cash requirements of the company (Jurich & Walker 2019). The decision should be discussed with the board and should be made in the interest of the company and its shareholders.

In my view, the Equity method of financing adopted by Global payments is a good option considering that there is no outflow of cash from the company. The Reserves & surplus keep intact and can be used in future opportunities. Amid global uncertainties and recession, it is a good strategy because it saves on the cash reserves & the company has not to pay any interest on its loans (Jurich & Walker 2019). The companies who want to expand and also not want to increase their debts should consider equity as a means of financing. The business is uncertain and the introduction of startups in this business sector always has its adverse effects.

Using Retained earnings as another method of financing is idle if the company's reserves are swelling and the company does not want to divert its ownership. The retained earnings are the surplus earned over the years and can be used for business purposes (Finkelstein & Cooper 2018). Debt financing is another method of financing which is idle for those companies who have the interest-paying capacity and want this as deductible expenses to be adjusted through its profits (Finkelstein & Cooper 2018). The debt method allows companies to keep their ownership intact. Among all the methods, it is recommended to use the hybrid method of financing which is the mixture of all the financing methods (Finkelstein & Cooper 2018). This method has benefits of all methods of financing. The hybrid method of financing gives companies the flexibility of financing at ease.

For example: Thee company Global payments has chosen an all-stock/equity method of financing which is not always acceptable to all shareholders. This way the company has now distributed voting rights also which also means that the decision making will now take further time and efforts. The hybrid method bears characteristics of both equity and debts.

It is suggested that the parent company should have opted for a hybrid as per their convenience. The benefit that can be immediately achieved will be deductibility of Debt interest payments. The interest on loan like bank loans, debentures or bonds has an advantage of setting off from profits of the company. However, there should be an ideal mixture of Debt & equity because extreme of both methods will not produce the best results. Our suggestion is backed up our analysis that the businesses models of developed companies don't want to sell off its ownership (Welling & Gabelli 2018). The business strategies of market leaders are the key to their success and growth which is compromised with more equity shareholders in the company. New company's board of directors now comprise of 12 directors, 6 from each company. The new majority for a resolution to be passed by the Board shall 7 or more directors, more than 50% of directors (Refer appendix).

Here we can see that the company does not sufficient funds for cash deal hence its decision for an all-equity deal is well justified also. As per our chart, we see the change in shareholders fund has increased post-merger of Global payments Inc. Further, we see that the company has borrowings which justify the company's decision to go for an all-share deal. The company decision seems justified in an all-share merger deal.

References for Global Payments and Total System Services

Adams, J 2019, 6 takeaways from the Global Payments-TSYS merger, viewed 11 May 2020, https://www.paymentssource.com/list/6-takeaways-from-the-global-payments-tsys-merger

Allison, D 2019, Decade of Growth: Global Payments and TSYS to combine in ‘merger of equals, viewed 11 May 2020, https://www.bizjournals.com/atlanta/news/2020/03/27/decade-of-growth-global-payments-and-tsys-to.html

Finkelstein, S. and Cooper, C. L 2018, Advances in mergers and acquisitions. Bingley, UK: Emerald Publishing Limited

Fuscaldo, D 2019, Global payments and TSYS merge in $21.5 billion deal, viewed 11 May 2020, https://www.forbes.com/sites/donnafuscaldo/2019/05/28/global-payments-and-tsys-merge-in-21-5-billion-deal/#205c3f883c3d

Global payments 2019, Global Payments Completes Merger with TSYS, Creating Preeminent Technology-Enabled Payments Company, viewed 11 May 2020, https://investors.globalpaymentsinc.com/news-releases/news-release-details/global-payments-completes-merger-tsys-creating-preeminent Jurich, S, N and Walker, M. M, 2019, What drives merger outcomes?, The North American Journal of Economics and Finance, vol. 48, no.c, pp. 757-775

Sloan, J 2019, Global Payments and TSYS Have Merged: Bringing A New World of Payment Possibilities, viewed 11 May 2020, https://www.tsys.com/news-innovation/whats-new/Articles-and-Blogs/Industry-Insights/global-payments-and-tsys-have-merged-bringing-a-new-world-of-payment-possibilities.html

Welling, K. and Gabelli, M 2018, Merger masters : tales of arbitrage. New York: Columbia University Press

Remember, at the center of any academic work, lies clarity and evidence. Should you need further assistance, do look up to our Corporate Finance Assignment Help

Get It Done! Today

Applicable Time Zone is AEST [Sydney, NSW] (GMT+11)
Not Specific >5000
  • 1,212,718Orders

  • 4.9/5Rating

  • 5,063Experts

Add Money to your MAS Wallet
Pre Book your Next Semester Assignments
Enroll Now

Highlights

  • 21 Step Quality Check
  • 2000+ Ph.D Experts
  • Live Expert Sessions
  • Dedicated App
  • Earn while you Learn with us
  • Confidentiality Agreement
  • Money Back Guarantee
  • Customer Feedback

Just Pay for your Assignment

  • Turnitin Report

    $10.00
  • Proofreading and Editing

    $9.00Per Page
  • Consultation with Expert

    $35.00Per Hour
  • Live Session 1-on-1

    $40.00Per 30 min.
  • Quality Check

    $25.00
  • Total

    Free
  • Let's Start

Get
500 Words Free
on your assignment today

Browse across 1 Million Assignment Samples for Free

Explore MASS
Order Now

Request Callback

Tap to ChatGet instant assignment help

Get 500 Words FREE
Ask your Question
Need Assistance on your
existing assignment order?