If Worldline’s bid succeeds, its chief executive will need to decide what to do with Ingenico’s payment terminals business © REUTERS

Payment services companies are scrambling for the scale that bestows network advantages. Worldline plans to become Europe’s largest contender by taking over Ingenico, another French business. Appropriately, Worldline is offering Ingenico shareholders a menu of payment options — cash, shares or a mix of both. On Monday, the choice made no immediate difference to a finely-judged valuation of €123 per share or €9bn in total, including debt.

The deal would create a European champion in a sector dominated by US-based giants. Worldline is offering a hefty 25 per cent premium to Ingenico’s three-month undisturbed share price. Generous cost savings should help compensate the acquirer for that.

Ingenico shares have doubled since the start of 2019. They hit a five-year low after a failed takeover by French bank Natixis. Worldline’s takeover premium pushes the valuation to 14 times enterprise value-to-ebitda, the highest since 2015. 

Chart shows 2019 sales (% of total) showing merchant services will still dominate sales

That recovery reflects a rebound in sales at Ingenico’s banks and acquirers unit. This sells payment terminals and services to financial intermediaries. Tough competition — including from Ingenico’s own retail payments division — meant European sales at the division fell 16 per cent in 2018. Last year, the drop in comparable sales slowed to just 5 per cent and the business grew as a whole. 

If Worldline’s bid succeeds, chief executive Gilles Grapinet will need to decide what to do with Ingenico’s payment terminals business. This could prove a dragging anchor in a combined business focused on merchant services. This is the sweet spot where new technology has most traction and where the benefits of scale are found.

Almost all of the €220m in annual cost savings that Worldline has identified fall under merchant services. Worth almost €1.7bn taxed and capitalised, they would comfortably cover the €1.5bn takeover premium. But they would not be fully realised until 2025.

Mr Grapinet may opt to sell the terminals business after the acquisition completes. It has already been legally siloed from the rest of Ingenico. A disposal could fetch up to €3bn. That would pay down net debts to 2.5 times ebitda. Further reductions would give Worldline scope to rejoin the payments land grab.

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