Payments processor Global Payments to buy rival Heartland for $4.3 billion

(Reuters) — U.S. payments processor Global Payments Inc (GPN.N) will buy smaller rival Heartland Payment Systems Inc (HPY.N) in a $4.3 billion cash-and-stock deal that will expand its merchant base and reach at a very competitive time in the industry.

Payment processors globally are looking to expand via acquisitions and alliances as more and more payments are made electronically, including through cards and mobile wallets.

Global Payments said Heartland’s strength was in direct sales and technology-led distribution, which would boost its U.S. direct small and medium-sized enterprise distribution and reach in the restaurant and education industries among others.

Heartland’s shares jumped 12 percent to $95.40 in extended trading on Tuesday, compared with Global Payments’ offer of $100 per share. Global Payments’ shares fell 3 percent to $69.25.

Global Payments said in its latest annual filing that it expects the electronic payment services industry to consolidate as banks and independent processors that lack the necessary infrastructure look to exit the business.

British payments processor Worldpay Group Plc (WPG.L) went public in October, having rejected a buyout offer earlier in the year from French rival Ingenico Group SA (INGC.PA).

Global Payments and Heartland said their combined business would serve nearly 2.5 million merchants globally and earn more than $3 billion in adjusted net revenue.

“The transaction will meaningfully shift the mix of our revenue toward the United States, our largest market and one of the most dynamic payments markets worldwide,” Global Payments Chief Executive Jeffrey Sloan said in a conference call.

Bigger rival First Data Corp (FDC.N), which also listed in October, serves about 6 million business locations and over 4,000 financial institutions.

“The combined power of Global and Heartland is going to surprise a lot of industry watchers,” Heartland’s founder and chief executive, Robert Carr, said.

Global Payments offered 0.6687 of its shares and $53.28 in cash per Heartland share. That works out to about $100 per share, a 17.5 percent premium to the stock’s Tuesday close.

Global Payments said it expects the deal will add to its cash earnings per share in the mid-single digits on a percentage basis in the year ending May 2017 and by double-digits after that.

The company intends to fund the cash portion of the deal with debt financing. Its shareholders will own about 84 percent of the combined company.

News of a potential deal was reported by Bloomberg on Dec. 10. Shares of both companies hit record highs on that day.