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Worldpay spin-off hands FIS mixed bag

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With the spin-off, FIS is unwinding the $43 billion acquisition of Worldpay it undertook just four years ago in 2019. As part of that transaction, FIS paid about $35 billion and took on about $8 billion of debt. It now expects to make the Worldpay unit into a separate publicly-traded company by early next year, though FIS will still do business with it.

FIS is breaking up the business under pressure from activist investors who bought into the company last year and under the leadership of a new CEO, Stephanie Ferris, who took the top post in December.

In discussions with analysts, FIS executives have painted the spin-off as an opportunity to let Worldpay grow through acquisitions.

“We note that the primary driver of the spin was the need for Worldpay to pursue M&A and investment to support growth,” RBC Capital analyst Daniel Perlin said in report on FIS last month.

While FIS may encounter some near-term execution stress, the parent is expected to benefit in the long run. FIS will have a higher mix of recurring revenue after the spin-off, as it continues to benefit from banks and other financial institutions outsourcing technology needs, according to a report from the debt ratings service Fitch Ratings. By contrast, catering to merchants, as is the case at Worldpay, generates less consistent revenue.

“Merchant Solutions has more cyclicality, and FIS should benefit post spin-off from lower cyclicality over time,” Fitch said in a February report.

Aside from the spin-off, FIS has said it’s bolstering its business by way of a $1.25 billion cost-reduction plan this year. The company has cut 2,600 employees as part of the cost-cutting, according to the news outlet Bloomberg.

Nonetheless, there will be “significant” costs tied to the spin-off itself, and they remain unknown, according to the FIS filing with the SEC. There will be “some one-time costs and revenue and expense dis-synergies,” the filing said.

“FIS’s Future Forward cash flow savings plan likely illustrates the path to recoup some drag from dis-synergies,” Oppenheimer analyst Dominick Gabriele said in an April 28 report.