Popular, Inc. (“Popular” or the “Corporation”) (NASDAQ: BPOP) announced today its entry, along with its wholly owned subsidiary, Banco Popular de Puerto Rico (“BPPR”), into a definitive agreement with Evertec, Inc. (“Evertec”) and Evertec Group, LLC, a wholly owned subsidiary of Evertec, to acquire assets and assume liabilities used by Evertec to service certain BPPR channels. Popular expects the acquisition will accelerate the Corporation’s ongoing digital transformation and continue improving the experience of its clients.
In connection with the closing of the acquisition, Popular and BPPR will also amend and extend important service agreements pursuant to which Evertec provides, among other services, information technology and payment processing services. The amendments of these contracts will eliminate service exclusivities and are projected to reduce service costs as a result of discounted pricing and lowered caps on contractual pricing escalators tied to the Consumer Price Index. The amendments are also expected to improve Popular’s ability to meet its customer needs in a timely manner and increase optionality to develop and enhance technology platforms and select service vendors.
In addition, at the closing of the acquisition, BPPR also will amend and extend the agreement that governs its merchant acquiring relationship with Evertec. The new agreement will provide BPPR with revenue sharing, strengthening BPPR’s relationship with Evertec in payments.
At or after closing, Popular anticipates adding approximately 175 employees and contractors that support the servicing of the key channels, strengthening and deepening Popular’s in-house technology bench.
The total consideration to be paid for the transaction will be $196.6 million, to be paid by delivering 4,588,955 shares of Evertec common stock held by Popular and valued at $42.84 per share. After the completion of the transaction, Popular’s ownership stake in Evertec is expected to be approximately 10.5%. In connection with the transaction, Popular has also agreed to reduce its voting interest in Evertec below 4.5%, whether through selling shares of Evertec common stock or a conversion of such shares into non-voting preferred stock. Popular expects to sell down its stake in Evertec below 4.5% following the closing and intends to return to shareholders, via common stock repurchases, the after-tax gains resulting from such sale, subject to the receipt of regulatory approvals.
The use of Evertec shares as consideration for the transaction, assuming a share price of $41.13 (its closing price on February 23, 2022), would result in an after-tax gain of approximately $135 million. In addition, the effect of the expected subsequent sell-down or conversion of shares to reduce Popular’s participation in Evertec below 4.5% is estimated to be $215 million in after-tax gains, assuming the same value per share.
Excluding these gains, the financial benefits of the transaction during the first full year are expected to be offset as a result of the elimination of Popular’s earnings from its equity investment in Evertec and the subsequent further reduction in Popular’s voting ownership stake. However, the financial effect of the transaction is expected to be accretive during future years due to, among other things, incremental merchant acquiring revenue sharing income and future price reductions in continuing services.
“The financial technology space is evolving rapidly. The increased expectations to digitize and improve our customer experience requires that we constantly assess and invest in our capabilities. This transaction will enhance our client experience and allow us greater flexibility to meet our customer demands. Evertec will continue to be a key strategic partner and we look forward to working together to build on our payments strategy,” said Ignacio Alvarez, President and Chief Executive Officer of Popular, Inc.
Mac Schuessler, Evertec’s President and Chief Executive Officer said, “This transaction represents the next step in a multi-year strategy that started back in 2015 of repositioning Evertec as a premier payment player in the region and an essential partner to Banco Popular solidifying our relationship with our largest client.”
The transaction, which is expected to close on or about June 30, 2022, is subject to certain closing conditions.
J.P. Morgan Securities LLC is serving as financial advisor to Popular, with Sullivan and Cromwell LLP, Pillsbury Winthrop Shaw Pittman LLP and Pietrantoni Méndez & Alvarez LLC acting as legal advisors.
Popular is filing an investor presentation to provide supplemental information regarding the transaction. The investor presentation is available at Popular, Inc.’s website (www.popular.com).
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