Visa Inc., the world's largest payments network, is in preliminary talks to buy former subsidiary Visa Europe Ltd. in a deal that may be valued at as much as $20 billion, people with knowledge of the matter said.
The talks, which began when Visa approached Visa Europe, are at an early stage and could fall apart if the two sides can't agree on a price, said the people, who asked not to be identified because the negotiations are private. The range being discussed is $15 billion to $20 billion, the people said. Both companies are working with advisers, they said.
Visa and its European counterpart split in 2007 ahead of the U.S. firm's initial public offering. Analysts have been speculating for years that they could merge. Visa Europe is owned by more than 3,000 European banks and has a put option that would force its former parent to buy it within about nine months if at least 80 percent of its board agrees, according to company filings.
Visa has said there is a 40% chance that Visa Europe would exercise the put, and estimated last month that doing so would cost the Foster City, Calif.-based company more than $10 billion. The final price depends on a complicated formula with a range of variables.
A representative for Visa Europe in London didn't immediately respond to voice and e-mail messages outside of regular business hours. A representative for Visa Inc. didn't respond to requests for comment.
Visa Europe's owners explored exercising the put option and setting up their own payments business in early 2013, the Wall Street Journal reported at the time.
The European firm split from Visa Inc. prior to the U.S. company's 2008 IPO. Its former U.S. parent may be exposed to European Union regulations and future litigation involving Visa Europe if the option is exercised, Jason Kupferberg, a Jefferies Group LLC analyst, said in a note to clients in November.
Analysts regularly ask Visa about the prospect.
"It's a consistent question," Visa Chief Executive Officer Charlie Scharf said last month in an earnings call. "Until they get 80%, then it's not going to happen. So I really don't know."
Visa would like to fold Visa Europe into the larger company at the earliest possible time, Scharf said in March 2014 at an investor conference.
"Over the long term, we absolutely would love Visa Europe to be part of the company," Scharf said. "It just to us makes extraordinary amount of sense. Sooner is better."
At an investor conference two months later, Scharf said Visa may consider issuing debt to help pay for a Visa Europe purchase.
"We think the company should have debt," Scharf said. "The question is, at what time, for what reason. And, when you got someone with a put the size of Visa Europe, we need to be conscious of factoring that financing into our thinking."
Visa Europe, which has a licensing agreement with Visa, managed more than 500 million accounts and processed more than 16 billion transactions last year, according to its annual report. It earned 219.8 million euros ($246 million) in 2014, up 29% from a year earlier.