Global Payments Inc. fortified its position Friday in international payment processing by acquiring the remaining stake in its merchant services joint venture with HSBC Holdings PLC.
HSBC said divesting its minority stake in the venture would allow it to focus on its core strengths.
Global Payments is "focusing on what they're good at, and we're focusing on what we're good at," said Patrick McGuinness, the head of HSBC's press office.
Paul R. Garcia, Global Payments' chairman and chief executive, said in an interview Friday that making the deal for the rest of HSBC Merchant Services was the right thing for both of the venture's owners.
For Global Payments, the purchase will simply mean more earnings, he said. "The downside of a JV is that if it's successful, you split up the profits. This thing is a very well-run business. We're very happy with it. It's a very profitable business. Because of that, we now, quite frankly, quite simply, get to enjoy 100% of those profits."
HSBC Merchant Services provides payment processing for brick-and-mortar merchants in the United Kingdom and Internet merchants worldwide; HSBC will continue to refer customers to the unit through June 2019.
Garcia said there are no immediate plans to change HSBC Merchant Services' name.
In June of last year, when his company said it would buy a 51% stake in HSBC Merchant Services, then a unit of the British banking company, Garcia said the HSBC brand would be a key benefit.
On Friday, Garcia said: "The bank is still very much involved with the business. We are associated with them and their brand, and that's all positive."
Global Payments praised the performance of HSBC Merchant Services as recently as its last earnings call in April, when it called the venture one of its strongest businesses in a quarter marred by a goodwill impairment that led it to report a loss.
The venture provided Global Payments with $50 million of its $392.7 million of revenue for its fiscal third quarter, ended Feb. 28.
On Friday, Global Payments paid $307.7 million for HSBC's 49% stake, compared with the $439 million it paid for the initial stake.
The difference in price reflects the nature of the two stakes, McGuinness said. "Last year that was a controlling interest, and there was a premium for control."
In addition, the difference in price was exaggerated by exchange rates, he said. The British pound was worth more than $1.90 in June of last year, compared with $1.65 Friday.
HSBC will benefit most from freeing up resources for the long term, McGuinness said; since it no longer must nurture the venture, it can focus more readily on its core businesses.
Garcia said the financing for last week's transaction came in part from cash on hand and in part from lines of credit.
The ownership change does not foreshadow any major changes for HSBC Merchant Services, he said. Buying the remaining stake "doesn't take shackles off and allow me to do things that I heretofore couldn't have done."
Adil Moussa, an analyst at Aite Group LLC of Boston, said the transaction should fuel Global Payments' continued international expansion.
"Global has been focused on international growth," he said. "They have realized, along with other players, that the market is outside the U.S."
The numbers worked out well for both sides of the sale, Moussa said, since Global Payments is focused on improving its international foothold and long-term growth, whereas HSBC, like any banking company, is looking for ways to increase capital in the near-term.
Global Payments will get "a bigger share of the returns from a market that is going to be recovering," he said. "If the market is down, there is only one way to go: It's up."
Thomas C. McCrohan, an analyst at Janney Montgomery Scott LLC, said Global Payments had enough cash on hand — $385 million — to have funded the deal without credit.
Putting any cash toward the deal was better than keeping it locked up, McCrohan said. "It's a pretty good use of cash … they're really in a good spot to do deals right now.
The transaction "puts them in a better position for future deals when people see what they've successfully done in the U.K.," he said. "It's a mature market in the U.K.," but the transaction is "important to the extent that they're really keen on growing the international business."
Theodore Iacobuzio, a research executive for TowerGroup Inc., a Needham, Mass., independent research firm owned by MasterCard Inc., said HSBC was wise to make the sale now, even though it was not significantly troubled.
"HSBC had a very good first quarter, as these things go," he said, though it still could benefit from more capital. The critical benefit for the company is that it could "cash out on something it no longer had control over anyway."
For Global Payments "it's giving it global reach, and that's extremely important," Iacobuzio said. "When the dust clears on this crisis, there are going to be global banks and global merchants" seeking partners with international reach.
