Visa, Plaid Pull Out Of $5.3B Merger Deal After US Regulator Steps In

Visa Inc. and Plaid announced the termination of their $5.3 billion merger agreement after the US Department of Justice (DoJ) filed a lawsuit to block the deal in a move to preserve competition.

Visa (V) said that following the termination, the DoJ decided to dismiss the litigation related to the proposed merger, which was first announced on January 13 last year. The DoJ filed a civil antitrust lawsuit on Nov. 5, 2020, claiming that Visa is a “monopolist in online debit, charging consumers and merchants billions of dollars in fees each year to process online payments.”

Plaid is a fintech firm, which is developing a payments platform and therefore, the deal would have eliminated this “competitive threat” to Visa’s online debit business and strengthened its monopoly, according to the DoJ.

“We are confident we would have prevailed in court as Plaid’s capabilities are complementary to Visa’s, not competitive,” said Visa CEO Al Kelly. “We believe the combination of Visa with Plaid would have delivered significant benefits, including greater innovation for developers, financial institutions and consumers. However, it has been a full year since we first announced our intent to acquire Plaid, and protracted and complex litigation will likely take substantial time to fully resolve.”

The laswsuit was scheduled for trial in the US District Court for the Northern District of California on June 28, 2021.

“Now that Visa has abandoned its anticompetitive merger, Plaid and other future fintech innovators are free to develop potential alternatives to Visa’s online debit services. With more competition, consumers can expect lower prices and better services,” said Makan Delrahim of the DoJ’s antitrust division.

Looking ahead, Visa’s Kelly said that the company will be focused on pushing its three growth pillars: consumer payments, new flows, and value-added services.

“Over the past year, our Visa Direct solution moved money around the world using multiple card, ACH and RTP networks, growing nearly 70 percent. In addition, our value-added services revenue has grown in the mid-to-high-teens,” Kelly added.

Commenting on the termination of the merger deal, Oppenheimer analyst Dominick Gabriele reiterated a Buy rating on the stock with a $245 price target (17% upside potential) as he doesn’t expect EPS headwinds due to the termination.

“V is likely to recreate over time Plaid’s capabilities through Plaid/non-Plaid partnerships/organically and/or through acquisition; it’s just a longer path with less immediate cross sell,” Gabriele wrote in a note to investors.

The “announcement doesn’t mean V’s LT Fintech partnership strategy is broken, only likely delayed,” the analyst added. (See V stock analysis on TipRanks)

The rest of the Street has a bullish outlook on the stock. The Strong Buy analyst consensus breaks down into 18 Buys and 3 Holds. With shares up almost 8% over the past year, the average analyst price target of $229.37 implies upside potential of another 9.8% over the coming year.

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