WU Western Union Company

In yet another initiative to expand its presence in Europe, the world’s leading money transfer company, Western Union Co. (WU) has announced the completion of its acquisition of Finint S.r.l., one of the leading agents in its money transfer network in Europe.

Western Union owned a 30% interest in Finint for over a decade. After regulatory approvals, the company acquired the remaining 70% of interest in the Finint. With just two months to go for the conclusion of FY11, we do not think that the acquisition will be a great value-add for full year 2011 earnings. Financial terms of the deal were not disclosed.

Given an ever-growing remittance market in Europe, Western Union continues to aggressively expand its presence in the region where it already has strong agent relationships, loyal consumers, and a well positioned brand name.

Earlier during the year, Western Union completed the acquisition of the remaining 70% interest in one of the leading super agents in Europe, Angelo Costa, for a cash consideration of approximately $140 million.

This acquisition has allowed the company to access its network locations more effectively and move closer to its consumers, along with helping to introduce new products and services such as prepaid cards more quickly.

It has also enabled Western Union to optimize commission rates and achieve operating efficiencies by leveraging the company’s European infrastructure, including the infrastructure acquired with the FEXCO buy in 2009.

Western Union is also continuously making progress with its retail agent expansion in Europe. Since the passage of the Payment Services Directive (PSD), the number of the company’s activated retail locations has exceeded 2,500. Presently, all these locations are recording good productivity.

The European Union PSD was implemented in November 2009. It is a regulatory initiative by the European Commission, which aims to increase pan-European competition and participation in the payments industry (also from non-banks) by removing barriers to access by payment service providers to any European Union country.

The PSD has allowed Western Union to add agents likemobile operators, retailers, e-commerce companies and funds-transfer organizations throughout Europe. Prior to the roll-out of this directive, the company found it difficult to enter the region due to the licensing requirement and a lack of attractive partnership opportunities.

The licensing requirement made the agent model too expensive. However, under the new framework, agents are essentially able to operate under Western Union’s license. 

In anticipation of the Payment Services Directive, Western Union acquired the money transfer business of European-based FEXCO, one of its largest agents, in February 2009. Also during September 2009, Western Union signed three major new agents in Europe – Largardère Services, Ortel Finance and PayUp.

Western Union is on track to generate its targeted 1% of total 2011 company revenue from its retail operations in Europe.

During the most recent reported third quarter, Western Union posted earnings of 42 cents per share beating the Zacks Consensus estimate by 3 cents on the back of strong margin improvement led by its Consumer-to-Consumer (C2C) segment and a lower share count. Also prompted by solid earnings this year thus far, management has made an upward revision to the FY11 guidance.

Western Union competes with Minneapolis, Minnesota-based Moneygram International Inc. (MGI). Western Union carries a Zacks #3 Rank, which translates into a Hold recommendation over the short term (0-3 months). However, given its solid operating fundamentals, we expect Western Union to Outperform its peers over the longer term (6+ months).

 
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