Yesterday, Western Union Co. (WU) announced that it has entered into an agreement with London-based foreign exchange company Travelex Group to purchase its global business payments arm.
Travelex Group –Travelex Limited, Travelex Currency Services, Inc., Travelex Holdings Limited and Travelex Canada Limited – are also involved in the agreement. The acquisition, which is valued at $606 million, is expected to close by 2011 end.
In early 2010, Travelex reported significant losses due to interest payments on its large debts. So, the company was considering a range of financing options. In April 2011, it appointed banks to manage the sale of its global business payments division, world’s largest non-bank provider of foreign exchange and risk solutions. In December 2010, Travelex sold its card program management operations to MasterCard in a deal worth £290 million.
Western Union is actively seeking to expand in the European Region. In keeping with this strategy, in June, Western Union announced the acquisition of Finint S.r.l., one of its leading money transfer network agents in Europe.
Western Union had owned a 30% interest in Finint for over one and a half decades. Now, pursuant to the agreement, which is subject to regulatory approvals, the company would take over the remaining 70% of interest in Finint. The transaction will be completed by the second quarter of 2011 but will not be greatly accretive to 2011 earnings.
Also, in April 2011, Western Union completed the acquisition of the remaining 70% interest in Angelo Costa, a leading super agent in Europe, for cash consideration of about $140 million. This acquisition allow the company to access its network locations more directly and also help introduce new products and services such as prepaid cards more quickly. Moreover, it will enable Western Union to optimize its commission rates and achieve operating efficiencies by leveraging the company’s European infrastructure, including the infrastructure attained through the FEXCO acquisition in 2009. The company is presently busy integrating Angelo Costa, and it expects the 2011 EPS to derive a net benefit of 1cent from the acquisition, which would be reported in second quarter 2011 results.
Western Union continues progress with its retail agent expansion in Europe. Since the passage of the Payment Services Directive (PSD) in November 2009, the company’s activated retail location count has amounted to over 2,500. Presently, all these locations are recording good productivity. European Union PSD is a regulatory initiative by the European Commission, which aims to increase pan-European competition and participation in the payments industry (also from non-banks) by removing barriers to access by payment service providers to any European Union country.
The PSD has allowed Western Union to add agents like mobile operators, retailers, e-commerce companies and funds-transfer organizations throughout Europe. Prior to the roll-out of this directive, the company had much difficulty in entering the region due to the licensing requirement and a lack of attractive partnership opportunities. The licensing requirement made the agent model too expensive. However, the new framework allows the agents to easily operate under Western Union’s license.
In anticipation of the Payment Services Directive, Western Union had acquired the money transfer business of European-based FEXCO, one of its largest agents, in February 2009. Also, during September 2009, Western Union signed three major new agents in Europe – Largardère Services, Ortel Finance and PayUp.
The recent Travelex acquisition is Western Union’s yet another bid to spread out further and strengthen its position in Europe. The company is on track to generate its targeted 1% of total 2011 company revenue from the European retail.
Western Union competes with Minneapolis, Minnesota-based MoneyGram International Inc. (MGI). The stock of Western Union carries a Zacks # 3 Rank, which translates into a “Hold” recommendation over the short term. Further, over the medium-to-long term, we suggest the investors to maintain a “Neutral” position.
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