Fidelity National Information Services, Inc (FIS) is a financial services company with over $3.7 billion in annual sales, focused on credit card and mortgage processing.
Background
On May 6, 2010, the Wall Street Journal reported that FIS was in talks with the Blackstone Group and THL Partners, two private equity firms, about a leveraged buyout in the $10-11 billion range.
The stock jumped on the announcement, and moved even higher after rumors surfaced that another private equity firm wanted in on the deal as well. News organizations increased their estimates to more than $15 billion, making it potentially the largest leveraged buyout since the start of the credit crisis.
However, on May 18, the deal fell through and the Company decided to pursue a leveraged recapitalization plan and substantial share repurchase instead.
Announcement
On May 25, the Company released a statement outlining the terms of the recapitalization plan:
As stated in the news release, our Board of Directors has authorized a plan under which our Company will repurchase up to $2.5 billion of its common stock at a price range of between $29.00 – $31.00 per share through a modified “Dutch auction” tender offer. In order to effect the proposed recapitalization, we intend to borrow approximately $2.5 billion of incremental debt. FIS is in a strong financial position and generates significant free cash flow, so we are very comfortable with the proposed debt levels that we will incur in repurchasing the company stock.
Odd-Lot Provision
Although the final price level and number of shares purchased will be determined by the dutch auction, the tender offer provides priority to ‘odd lot’ shareholders of less than 100 shares.
Even if the offering is oversubscribed, this provision ensures small shareholders will receive a full cash-out without any proration, a great opportunity for the average investor.
Timeline
May 25: FIS announces details about the proposed recapitalization plan and self-tender offer.
July 6: The Company sells $1.1 billion in Notes to qualified institutional buyers, the main condition for the share repurchase
July 6: FIS commences the tender offer.
July 16: Proposed closing of $1.1 billion Note offering
August 3: Conclusion of the tender offer
Late August: Shareholders who validly tender their shares will be cashed out at the final auction price, with priority for the ‘odd lot’ shareholders defined above.
Return Scenarios
As of July 9, I’m adding FIS to my ValueUncovered portfolio using the latest closing price of $27.70.
Final Tender Price
TBD
Conclusion
The deal offers attractive annualized returns for a month long trade. Although there is always risks with such a large transaction, FIS is very well capitalized and I don’t forsee any problems with the offer going through.
I think Frank Martire, the Company’s President & CEO, says it best:
The recapitalization plan is consistent with our commitment to doing what is in the best interests of our company, our clients and our shareholders. Our strong financial position, combined with appropriate market conditions and our excellent relationships with lenders, make this the right move at the right time.
Supporting Documents
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Disclosure
Long FIS
Hey
I am new to investing and looking up special situations. Thanks for writing this as I am very interested in the deal. I have a question about shareholders are invited to tender their shares? If I am a shareholder, I have to tender my shares to get the benefits of exchanging my shares for cash? How do you exactly tender your shares? Plus what happens to the people who dont tender their shares?
thanks
charlie
Charlie,
Welcome to the site and thanks for the comment!
In order to be cashed out as part of this transaction, you must choose to tender your shares. If you are already a FIS shareholder, you can call your brokerage to request that they tender the shares for you. Most brokers charge a transaction fee for this service, with can be pretty steep ($40-50 sometimes).
If you own more than 100 shares, the main risk in the deal is proration. The company will only buy back a number of shares that equals the total commitment of $2.5 billion. If more shares are tendered than necessary to fulfill this requirement, a percentage of shares will not be purchased and therefore returned to your account.
As a long-term shareholder, that might be okay. However, if you are entering the transaction as a special situations investment, you want to ensure your shares are cashed out. In that case, the ‘odd-lot provision’ described above ensures a cash out, as long as you own less than 100 shares.
Make sense?
Good writeup and great job digging this up. Are you monitoring news feeds for announcements of this kind?
Ankit,
I have a bunch of Google Alerts setup for specific keywords around going private transactions, tender offers, mergers, restructurings, etc.
It works out okay, although it sometimes pulls down information that is way outdated.
Fat Pitch Financials is a great resource for past special situations investments, and offers a premium service for up-to-date transactions and commentary.
Great work Adam.
Going to buy 99 shares with both my accounts.
Jae,
Careful purchasing shares in multiple accounts. From the offer statement:
Thanks for this analysis! So my wife could buy shares under her retirement account, and I could by shares under my own account? Seems like that would be ok, yes? Thanks
Greg,
Yes, it seems like this would be okay, as long as the name on the account is separate and unique.
I think the social security number has to be unique, not the name on the account.
Guess it will have to be 1 then 🙂
Asues,
This is an intriguing offer. When do you have to purchase the shares buy in order to participate in this offering. And is it available to stockholders outside of the US. (I live in Canada) There doesn’t seem to be much downside risk at this point. What is the likelihood in your mind of the offering falling through? What are some potential risks here?
Rocky
Rocky,
Thanks for the comment. Shares must be tendered before August 3.
Since the tender request must go through your broker, I’d advise leaving 3-5 business days to ensure the request has gone through.
I think the deal is highly likely to go through at this point, but there is always risk in these transactions.
In this case, the offer is subject to a debt offering, but the Company has already raised $1.1B and is in good financial shape.
Thanks for the information.
Rocky
FIS filed Q2 results along with news of the tender offer:
“As a result of the receipt of proceeds from the closings of the Notes offering and the Term B Loans, the financing condition to FIS’ repurchase of shares of common stock pursuant to its offer to purchase dated July 6, 2010, as amended or supplemented from time to time, has been satisfied. FIS will file an amendment to its tender offer materials regarding, among other things, the satisfaction of such financing condition.”
This just confirms that the financing condition is satisfied, and is obviously positive news.
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