Business Context and Reporting Period
This Form 8-K, dated August 20, 2019, is a current report filed by Global Payments Inc. regarding its proposed merger with Total System Services, Inc. (TSYS). The filing serves as a voluntary supplement to the Joint Proxy Statement/Prospectus to address six lawsuits (collectively "Merger Litigation") challenging the transaction. The companies deny the allegations but aim to avoid delays or increased costs associated with defending the suits. Special shareholder meetings for both companies are scheduled for August 29, 2019.
Key Financial Metrics and Valuation Data
The filing provides specific financial data points used in valuation analyses by financial advisors (Greenhill and Goldman Sachs) and prospective financial information for TSYS.
- Net Debt (as of April 30, 2019): TSYS: $3,536 million; Global Payments: $5,044 million.
- Net Debt (as of March 31, 2019): TSYS: $3,549 million; Global Payments: $4,849 million.
- Pro-Forma Net Debt (estimated at close): $7,861 million.
- Outstanding Shares (May 23, 2019): TSYS: 179.3 million; Global Payments: 157.5 million.
- TSYS Prospective Adjusted EBITDA: Projected to grow from $1,482 million in 2019 to $2,274 million in 2024.
- TSYS Prospective Adjusted Operating Income: Projected to grow from $1,206 million in 2019 to $1,894 million in 2024.
- TSYS Unlevered Free Cash Flow: Projected at $917 million for 2019, rising to $1,420 million by 2024.
- Advisor Fees: BofA Merrill Lynch derived approximately $31 million in revenue from Global Payments and $21 million from TSYS between May 2017 and May 2019. Greenhill received $4.5 million for prior M&A services to TSYS.
Material Changes and Supplemental Disclosures
The filing amends and restates several sections of the Joint Proxy Statement/Prospectus to provide additional clarity on the merger process and valuation:
- Board Composition: Clarified that the four additional continuing directors from each company will be definitively determined prior to closing to ensure a diverse and skilled combined board.
- Merger Negotiations: Disclosed that on May 23, 2019, executives agreed to target at least $300 million in run-rate cost synergies and $100 million in run-rate revenue synergies over three years. TSYS agreed to an exchange ratio resulting in 48% ownership for TSYS shareholders in the combined company.
- Valuation Ranges:
- TSYS Implied Equity Value (Greenhill): $19,108 million to $22,322 million ($106.59 to $124.53 per share).
- TSYS Stand-Alone Value (Goldman Sachs): $110.92 to $157.08 per share.
- Global Payments Stand-Alone Value (Goldman Sachs): $164.77 to $225.54 per share.
- Pro-Forma TSYS Share Value: $128.84 to $181.16 per share.
- Advisor Relationships: Detailed the extent of banking and advisory services provided by BofA Merrill Lynch to both companies, noting they held less than 1% of outstanding stock for each as of May 27, 2019.
Guidance, Outlook, Risks, and Contingencies
Management Commentary and Outlook: Both boards continue to recommend a "FOR" vote on the merger. The transaction is expected to close around September 30, 2019. The companies anticipate realizing significant cost and revenue synergies through the consolidation of operations and cross-selling opportunities.
Risks and Contingencies: The filing highlights significant risks that could prevent the merger from closing or alter its terms, including:
- Legal Proceedings: The outcome of the six pending lawsuits challenging the merger.
- Regulatory Approval: Failure to obtain necessary regulatory approvals on a timely basis or at all.
- Shareholder Approval: Failure to secure approval from shareholders of either company.
- Integration Risks: Difficulties in integrating systems, managing credit/fraud risks, and retaining key personnel.
- Market Conditions: Adverse economic conditions or changes in payment network rules (Visa, Mastercard).
Unusual Items: The filing explicitly states that the supplemental disclosures are voluntary and do not constitute an admission of liability or that the original disclosures were legally insufficient.
Important Facts for Investor Verification
- Merger Litigation Status: Verify the current status of the six lawsuits filed in Georgia, New York, and Delaware challenging the merger.
- Shareholder Vote Timing: Confirm the date and location of the special shareholder meetings scheduled for August 29, 2019.
- Valuation Assumptions: Review the specific assumptions used by Greenhill and Goldman Sachs regarding net debt, share counts, and synergy targets.
- Advisor Conflicts: Examine the full scope of financial services and fees received by BofA Merrill Lynch and Greenhill from both companies.
- Prospective Financials: Assess the realism of TSYS's projected Adjusted EBITDA and Free Cash Flow growth through 2024.