J.P. Morgan makes European Fintech move with Worldpay approach

IndustriesDow Jones Newswires

J.P. Morgan Chase made a preliminary approach to acquire U.K. payments business Worldpay Group, potentially marking one of the biggest deals for a U.S. bank since the financial crisis and reflecting banks' growing confidence in a shifting regulatory environment.

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The board of Worldpay on Tuesday said it had received preliminary approaches from J.P. Morgan and also from Vantiv, a U.S.-based credit-card processor. The board said there is no certainty an offer will be made; the two parties have until Aug. 1 to announce whether they intend to make an offer. As of Monday evening -- before the approach was disclosed -- Worldpay had a market value of $8.2 billion.

The expression of interest by the biggest U.S. bank by assets comes just days after J.P. Morgan and peers were given a regulatory green light to return billions of dollars of capital to shareholders via increased dividends and share buybacks. That news bolstered U.S. bank stocks, which had risen sharply in the wake of Donald Trump's electoral victory last November.

Like other big banks, J.P. Morgan has forgone sizable deals since the crisis when it bought Bear Stearns and Washington Mutual in distressed sales. Bank executives and analysts said the postcrisis political and regulatory climate, which was hostile to banks believed to be "too big to fail," made deal-making by the biggest firms virtually impossible.

But the Trump administration has vowed to loosen the shackles on banks and is in the process of putting its nominees, some former bankers, into key oversight posts at the Federal Reserve and other regulatory agencies.

"We've seen with the recent stress-test results that the regulators have clearly indicated a more comfortable position with banks' returning and using excess capital right now," said Douglas Landy, a partner at law firm Milbank, Tweed, Hadley & McCloy LLP who focuses on financial-services regulation. "And if you can just return it to your shareholders then why can't you use it for strategic acquisitions? In some ways that's a better way to use it: shore up your business model in a traditional space."

Mr. Landy said there also may be more regulatory leeway on this type of acquisition since it isn't a bank buying a bank or a consolidation of lending or other core banking functions. Instead, this is more targeted in a part of the industry that is undergoing a lot of change, especially through technology.

J.P. Morgan's move shows the growing interest among big banks in harnessing technology -- whether by building it or buying it -- before it disrupts their businesses. In this, J.P. Morgan has been particularly active, creating Chase Pay, a person-to-person payments transfer system meant to rival that of PayPal Holdings Inc. and launching a high-end rewards credit card that has challenged the premier offering of American Express Co.

Worldpay processes millions of payments daily in stores, online and on cellphones, predominantly in the U.K. and the U.S. Its shares soared 28% Tuesday. A person familiar with the company said both the approaches from Vantiv and J.P. Morgan were unsolicited.

Formerly known as Fifth Third Processing Solutions, Symmes Township, Ohio-based Vantiv changed its name ahead of its 2012 initial public offering. Its technology helps merchants, banks and credit unions accept credit- and debit-card payments, as well as gift cards and online payments.

The fall in the value of the pound versus the dollar following Britain's vote to leave the European Union last year made U.K.-based Worldpay a more attractive takeover target for U.S. buyers, bankers say. The company has been holding informal talks with potential suitors for months, according to people familiar with the matter.

Payments businesses have recently been popular acquisition targets. Banks and payment companies are racing to retool their offerings as customers increasingly turn to mobile devices to pay for goods.

Meanwhile, with processing fees being squeezed by regulators and the rising competition from technology startups, incumbents are trying to gain heft to generate economies of scale, analysts have said. Worldpay rival Nets AS of Denmark said last weekend that it had been approached by suitors. In April, Mastercard Inc. got regulatory approval to acquire payment-technology firm VocaLink Holdings Ltd. for about $920 million.

J.P. Morgan already runs Chase Paymentech Europe Ltd., a payments business based in Ireland which processes some 40 million credit and debit transactions a day.

Like other banks, J.P. Morgan has been reshaping its business, predicting customers will move away from credit cards and simply pay with their phones. In 2015 J.P. Morgan announced an overhaul of its Chase Pay product to better compete with the likes of PayPal. The bank has joined with a number of U.S. merchants to push its payment app. While the bank has made a series of smaller financial technology acquisitions in recent years, it has so far held off from big-ticket deals.

Worldpay was owned by Royal Bank of Scotland Group PLC until 2010, when the bank was forced to sell the business following its taxpayer bailout. Worldpay was then bought by private-equity groups Advent International and Bain Capital, who listed it in 2015.

The business has been growing strongly, posting a 15% increase in revenue to GBP4.54 billion ($5.88 billion) in 2016.

Write to Max Colchester at max.colchester@wsj.com and Emily Glazer at emily.glazer@wsj.com