WU Western Union Company

On Monday, Western Union Co. (WU), the world’s largest money-transfer company, announced the completion of acquisition of London-based Travelex Global Business Payments for approximately $973.8 million.

Travelex provides business payments services for 35,000 customers annually, which primarily includes small and medium-size companies (SME) and distribution partners. The acquisition will help Western Union to further enhance its reach in that segment of the industry.

Western Union’s customers will now be able to make international payments in more than 18 countries and will have the flexibility to choose form over 140 currencies. The company foresees a huge market opportunity in the SME market which is underserved.

The SME market is almost of the same size at that of consumer cross-border remittance market of $24 billion. Western Union expects to add more countries to its network in 2012 to serve this market.

The transaction will boost Western Union’s Global Business Payments segment earnings, which contribute approximately 14% of the total revenues.

The Englewood, Colorado based company has been aggressively positioning up its Global Business Payments segment in the rapidly growing cross-border payments market for small- to medium-sized enterprises. The business made an instant foray in this market with the acquisition of Custom House in 2009, which has been renamed as Western Union Business Solutions.

The Travelex acquisition will increase its revenue share from Global Business Payments segment over time easing its reliance on the consumer-to-consumer business which currently accounts for 86% of the total revenue.

Western Union has been working hard on acquisitions this year to spur growth and efficiencies in its key strategic areas. In addition to Travelex, the company also acquired Angelo Costa and Finint investing for a total of approximately $1.3 billion. Angelo Costa and Finint are Western Union’s leading money transfer agents in Europe in which the company already held 30% interest. Targeting the European market is expected to offer the company a huge untapped business potential.

Western Union’s third quarter operating earnings of 42 cents per share came in  ahead of the Zacks Consensus Estimate of 39 cents. A strong margin improvement led by its Consumer-to-Consumer (C2C) segment and a lower share count aided the results. Given the solid earnings so far this year, management has made an upward revision to the FY11 guidance.

Western Union is poised for long-term growth, which is validated by the combination of demographic trends, new market opportunities and its advantages of scale. With the help of its continued strong cash flow, the company is aggressively expanding in the global remittance market. We thus maintain our Outperform recommendation on Western Union, which competes closely with Moneygram International Inc. (MGI). The stock also retains a Zacks #3 Rank, which translates into a short-term Hold’ rating.

 
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