Mastercard outbids Visa for Earthport, a tiny firm in a $30 trillion sector
Few investors will have heard of Earthport Plc. But the company has just become the target in a bidding war between Mastercard Inc. and Visa Inc.
Earthport’s shares, listed on London’s small-cap Alternative Investment Market, quadrupled over the last four weeks, and rose 27 percent by mid-morning after Mastercard’s bid on Friday. The shares jumped again in late-afternoon trading, to 36.5 pence, when Visa said it was considering its options.
The 21-year-old firm isn’t a startup, and despite its name it isn’t playing in the private space travel game. Earthport is a cross-border payments network. It uses a cloud-based setup to help banks and other financial firms transmit payments for their own customers as an alternative to Swift, the 46-year-old nonprofit cooperative that’s long directed the global flow of money.
On Friday morning, Mastercard offered 33 pence per share for Earthport in a deal that values the firm at 233 million pounds ($307 million). That bested an offer Visa’s international arm made on Dec. 27 at a 300 percent premium to the firm’s undisturbed share price. Earthport’s board deemed the Mastercard offer "compelling."
The dueling bids represent an abrupt windfall for Earthport’s long-suffering shareholders. In the two years before the Visa bid, the company’s stock skidded more than 60 percent as it struggled to generate revenue growth and dealt with a 5 million-pound loss stemming from suspected fraud by an unidentified customer. In its 2018 fiscal year, Earthport recorded a loss of 8.5 million pounds on 32 million pounds in sales.
Under former Chief Executive Officer Hank Uberoi, Earthport built a network of dozens of banks in more than 65 countries over years of shoe-leather dealmaking. Bank of America Corp., Japan Post Bank Co., and BNP Paribas SA are clients, as well as fast-growing fintech players such as TransferWise Ltd. Last May, Earthport announced the appointment of Amanda Mesler as CEO and Uberoi stepped down as executive chairman.
"Earthport isn’t known for the quality of its tech, but a lot of players have discussed buying the company for its network over the years," said Brad van Leeuwen, the head of partnerships at Railsbank Ltd., a London-based fintech firm.
Cross-border payments are projected to exceed $30 trillion in 2022, according to Accenture. The credit card providers, which have long dominated processing payments for merchants, are pushing hard into this new terrain -- Mastercard with its Send business, and Visa with its Direct offering.
The battle for Earthport is yet another sign of how the arcane industry around payments has become rife with dealmaking. Last September, PayPal Holdings Inc. bought Swedish payments firm iZettle for $2.2 billion. Shares in Adyen NV, a Dutch firm that processes ecommerce payments, have almost trebled since its initial public offering last June.
Three major investors in London-based Earthport -- Miton Group Plc, Banque Lombard Odier & Cie, and Uberoi -- have signed non-binding letters in support of the new offer, according to a statement on Friday. Together they hold about 13 percent of Earthport. Oppenheimer Funds Inc., which had pledged its 16 percent stake in support of Visa, is relieved of this commitment following the higher bid.
After the Visa deal was announced, some shareholders had raised concerns that Earthport had not invited bids from a wider range of prospective owners. Now, two of the world’s best known finance firms are circling.