Visa and Plaid have called off their merger because of federal antitrust opposition to the deal.
The companies struck an agreement to merge a year ago, with Visa (ticker: V) agreeing to pay $5.3 billion for the payments-technology company. Plaid verifies and links accounts on apps like PayPal Holdings ’ (PYPL) Venmo service with a user’s bank account. Visa and Mastercard (MA) had both invested in Plaid, which began in 2012.
But in November, the Justice Department sued to block the merger, arguing that Visa was a monopolist in online debit—controlling 70% of transactions—and that Plaid aimed to challenge Visa’s dominance.
“The transaction would have enabled Visa to eliminate this competitive threat to its online debit business before Plaid had a chance to succeed, thereby enhancing or maintaining its monopoly,” the Justice Department said in a statement Tuesday, claiming victory. The case was scheduled to go to trial in June.
Visa Chairman and CEO Al Kelly said in a statement that “we are confident we would have prevailed in court as Plaid’s capabilities are complementary to Visa’s, not competitive.”
But Visa decided to scrap the deal because the “protracted and complex litigation will likely take substantial time to fully resolve,” he added.
The government appeared to be building a credible case. Its complaint noted Plaid had built connections to 11,000 U.S. financial institutions and more than 200 million consumer bank accounts in the U.S. While the companies don’t compete today, Plaid aimed to leverage those relationships to facilitate transactions in competition with the card networks, potentially cutting Visa and Mastercard out of debit transactions, the Justice Department said.
Visa was also worried about the threat; a Visa executive likened it to a “volcano” whose capabilities were “the tip showing above the water,” according to the complaint.
Wall Street liked the deal, however, and was baking it into long-term estimates for Visa.
Plaid would have been Visa’s largest acquisition and would have opened up new revenue streams for the card network. Analyst Lisa Ellis of MoffettNathanson described the combination as a “rare beast.”
“Plaid expands Visa into a new, non-payment-but-adjacent network—a financial information network,” she wrote when the deal was announced.
Plaid would have boosted Visa’s expansion into new payment areas by augmenting use cases for Visa Direct, its real-time “push network” for business-to-business and business-to-consumer payments, and it could help Visa capture online debit card interchange fees from digital spending accounts like Square’s (SQ) Cash App.
Ellis estimated Plaid could have added $120 million to $240 million in additional revenue to Visa in fiscal 2023, generating an incremental 1 percentage point in compound annual growth.
Those numbers will have to be revised now that Plaid will remain independent or look for another suitor.
Visa’s stock fell 1.9% Tuesday and slipped another 0.4% in after-hours trading Tuesday.
Write to Daren Fonda at daren.fonda@barrons.com
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January 13, 2021 at 06:19AM
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Visa and Plaid Scrap Merger. Wall Street Had Loved the Deal. - Barron's
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