American Express Company (AXP) and UK-based private equity house Permira are jointly bidding for Royal Bank of Scotland’s (RBS) payment processing division, the Financial Times reported yesterday. If closed, the deal could raise around $3.6 billion.
The experience of AmEx in processing payments for millions of customers could help the RBS division to expand in emerging markets.
AmEx’s cash position showed a balance of $21.0 billion as on March 31, 2010, amply demonstrating the financial capability of the company to participate in the bid.
AmEx made the significant acquisition of Internet-based payment service provider Revolution Money in January 2010. This deal is expected to provide AmEx an innovative technology platform to extend its leadership beyond the traditional payment fields. During the first quarter of 2010, the company also returned $216.0 million in dividends to shareholders.
The company’s liquidity plan helps it overcome financial obligations. Its funding strategy and activities help it arrange funds for participating in financial activities.
Other bidders in the pipeline include Moneris, the Canadian card payment company, and pure private equity buyers TPG, Warburg Pincus and a consortium of Advent International and Bain Capital.
The company’s closest peers, Capital One Financial Corp. (COF) and DFS (DFS), have not been involved in any acquisitions in the last quarter.
AmEx’s first quarter earnings of 73 cents per share from continuing operations were much ahead of the Zacks Consensus Estimate of 63 cents. This also compares favorably with earnings of 32 cents in the prior-year quarter.
Earnings improved from the prior-year quarter, primarily due to higher revenues as a result of increased cardmember spending and a decline in provision for credit losses. However, the downside came from increased expenses on account of business building initiatives and higher rewards costs, miserable real estate values as a result of higher unemployment and an uncertain legislative environment.
Overall, earnings in the reported quarter marked a significant improvement, reflecting a spike in card spending across all segments and facilitating AmEx to participate in the bid.
Read the full analyst report on “AXP”
Read the full analyst report on “RBS”
Read the full analyst report on “DFS”
Read the full analyst report on “COF”
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