FIS decided to spin off its merchant business after a failed $43 billion acquisition

Fidelity National Information Services Inc (FIS), a banking and payments processing conglomerate, recently took a massive $17.6 billion hit to its merchant business. The write-down came after the company revealed is plans to spin it off in order to make the best of the $43 billion acquisition, which turned out to be a bad purchase.

The firm created the merchant business on the back of a $43 billion acquisition of Worldpay four years back. The merchant business processes transactions for companies, but since the acquisition was made, new and better fintech startups have emerged, thus taking over a major market share and challenging the business’ profitability.

Given the state of the economy right now, even larger and more powerful firms were forced to cut costs and basically cut their losses in order to save their businesses.

FIS came up with a strategy of its own, stating that it intends to spin off Worldpay in the next 12 months and turn it into a completely separate company owned by the shareholders on a tax-free basis.

The purchase was massive, even back when it was made, and since the acquisition, FIS shares have lost more than half of their own value. On Monday, they closed down 12.5%, sitting at $66, while the company’s market cap was at around $39 billion.

FIS has seen changes in management in the last few months

The fact that FIS has been under major pressure to explore different strategic options from several activist investors, including Jana Partners and D.E. Shaw Group, also did not help. On top of that, the company published its forecast for 2023 profits yesterday, targeting a figure significantly under the market estimates. According to the firm’s prediction, the profits should bring between $5.70 and $6 per share, while analysts expected to see at least $6.57 per share.

The same activist investors urged the company to undertake a review of operations last year. They pointed out a significant discount in the firm’s share price, especially in comparison to competitors like Global Payments and Fiserv Inc. Jana even insisted on the company accelerating previously announced changes to its management.

FIS finally caved in come December 2022, and it revealed a wide-ranging strategic review of operations. It also got a new leader for the company — Stephanie Ferris, while Gary Norcross stepped down. Norcross was also the one who spearheaded the Worldpay acquisition, which is now considered a bad move.

As for Worldpay’s former CEO, Charles Drucker, he will return to leading the merchants business after it gets spun out. Ferris has been working closely with Drucker for years, going back to the early 2000s. Drucker himself is a veteran of the financial services sector. He worked at the Fifth Third spin-off called Vantiv before switching to Worldpay after its merge with Vantiv. He played a major role during the Worldpay acquisition, just like Ferris herself, but after the deal was closed, he left the company.