M&A

First Data to Spin Off Western Union

Western Union has benefited heavily from the large influx of people from foreign countries who send money home to their country of origin.
Stephen TaubJanuary 27, 2006

In a move aimed at boosting overall shareholder value, First Data Corp. said it would spin off its Western Union business, considered by many to be the company’s most valuable asset.

Analysts believe that after the tax-free split, which is expected to be completed in the second half of this year, Western Union could be valued at somewhere between $20 billion and $25 billion, according to several reports. Currently the company handles more than 275 million money transfers each year through its more than 271,000 agent locations in over 200 countries and territories.

Following the spin-off, First Data will be a slower-growing company specializing in processing credit-card payments for banks and stores, Bloomberg points out.

For its part, the company said in a press release that it expects the transaction to yield “two well-positioned public companies with global franchises: a high-growth company [Western Union] focused on serving consumers and a steady-growth company with great cash flow focused on serving merchants and financial institutions. First Data believes that its shareholders, customers and employees will all benefit from the focus of each company on its own strategic initiatives, growth plans and capital usage.” Christina Gold, currently a senior executive vice president of First Data and president of Western Union Financial Services, will become Western Union’s CEO after the spin-off.

Western Union has benefited heavily from the large influx of people from foreign countries who send money home to their country of origin. “China, India, Mexico, and the Philippines are providing an enormous number of immigrants to other parts of the world,” said Ric Duques, chairman and chief executive officer of First Data, in a conference call with analysts, according to Bloomberg.

Reacting to the spin-off announcement, Fitch Ratings lowered First Data’s default rating, senior unsecured debt, and senior credit facility to A from A-plus, and placed the company on its “Rating Watch Negative” listing. Fitch said the spin-off would result “in less diversity of the surviving entity, relatively higher competitive risks associated with the Card-Issuing Services segment, and First Data Corp.’s continued commitment to further enhance shareholder value.”