American Express and Permira Jointly Bid for Royal Bank of Scotland's Payment Processing Division

Strategic Insights -

The Financial Times reported yesterday that American Express Company (AXP) and UK-based private equity house Permira are jointly bidding for Royal Bank of Scotland's (RBS) payment processing division, a move that could raise around $3.6 billion. This deal is significant as it would leverage AmEx's experience in processing payments for millions of customers, potentially expanding the RBS division into emerging markets.

Key Takeaways:

  • The joint bid by AmEx and Permira could raise around $3.6 billion, according to the Financial Times.
  • AmEx has a strong financial position, with a cash balance of $21.0 billion as of March 31, 2010, demonstrating the company's ability to participate in the bid.
  • AmEx acquired Revolution Money, an Internet-based payment service provider, in January 2010, providing the company with an innovative technology platform to extend its leadership beyond traditional payment fields.
  • AmEx has been expanding its business through strategic acquisitions, including the recent dividend payment of $216.0 million to shareholders.
  • 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.
  • AmEx's first quarter earnings of 73 cents per share from continuing operations were significantly higher than the Zacks Consensus Estimate of 63 cents and the prior-year quarter earnings of 32 cents.
  • Earnings improvement was primarily due to higher revenues from increased cardmember spending and a decline in provision for credit losses, but was affected by increased expenses on business building initiatives and higher rewards costs.

Statistics:

  • $3.6 billion: potential deal value if AmEx and Permira close the joint bid for RBS's payment processing division.
  • $21.0 billion: AmEx's cash balance as of March 31, 2010.
  • 73 cents: AmEx's first quarter earnings per share from continuing operations.
  • 63 cents: Zacks Consensus Estimate for AmEx's first quarter earnings.
  • 32 cents: AmEx's earnings per share in the prior-year quarter.
  • $216.0 million: dividend payment made by AmEx to shareholders in the first quarter of 2010.

Sources:

  • Financial Times
  • Zacks Investment Research
  • Euclid Infotech Pvt. Ltd.