NEW YORK (Reuters) – Fidelity National Information Services (FIS.N) said its board approved a plan for the payment processing company to borrow more and use the funds to buy back as much as $2.5 billion of its shares.
The move follows failed talks between Fidelity National and a consortium of private equity firms last week after disagreements over price.
Some analysts had said last week that the company could resume talks with potential buyers, but the board buyback authorization signals that a buyout is unlikely at this point.
Fidelity National said on Tuesday it will buy shares at up to $31 apiece. The private equity consortium was proposing a buyout at $32 a share, sources said last week.
Shares in Fidelity National closed at $26.56, up 1.68 percent, on the New York Stock Excahng
Fidelity National plans to issue long-term bonds and get additional funds in the loan market, a step that requires it to amend the terms of its previous borrowings. The company hopes to repuchase the shares within eight to 10 weeks.
With the buyback, the company will boost its debt relative to its equity, which will increase its return on equity, a measure of profitability.
But Fidelity National is also taking on more risk by increasing its debt, including taking on the expense of paying interest on debt and the risk that it will have trouble refinancing borrowings in the future.
The private equity tranasction, which involved a group of investment firms including Blackstone Group LP (BX.N) would have also boosted the company’s borrowings.
But if private investors had bought the company from shareholders, Fidelity National would have been removed from the glare of public markets, where quarterly reporting requirements can force management to prioritize near-term profits over the best long-term strategy.
(Reporting by Dan Wilchins, editing by Leslie Gevirtz)