First Data Details Western Union Separation Plan
Breitkopf, David, American Banker
First Data Corp. has provided a detailed look at its planned spinoff of Western Union Financial Services Inc., including an explanation of how the parent company plans to divide its balance sheet.
In a filing Thursday with the Securities and Exchange Commission, First Data said that it expects the deal to go through in the fourth quarter. The remittance company would be renamed Western Union Co., and its stock would trade on the New York Stock Exchange under the ticker symbol WU.
The Denver transaction processor's shareholders would receive one share of Western Union stock for every First Data share they own.
As part of the spinoff, Western Union would transfer to First Data up to $3.6 billion, in cash or a combination of cash and debt securities.
Western Union plans to borrow money to cover the cash portion of that payment. It would also forgive the $87.2 million of debt owed by First Data.
Robert J. Dodd, an analyst with Regions Financial Corp.'s Morgan Keegan & Co. Inc., said that First Data has about $5.5 billion of debt. Shifting the bulk of it to Western Union would make sense, because it "has good cash flow, doesn't need acquisitions to drive growth, and can support a lot of debt."
After the spinoff, First Data would need to make acquisitions to grow, and "you need to be able to pay for them, so you need to minimize the debt on that piece of business, so it has more debit capacity to go out and make acquisitions," he said.
Last year Western Union generated $4 billion of revenue and $898.2 million of net income for First Data.
Excluding the initial separation costs, Western Union would have $65 million to $75 million of annual operating costs as a stand-alone company, according to the filing.
First Data announced the spinoff plan in January, after months of speculation that it would take dramatic steps to make itself easier for investors to understand. …