Globally recognized payment solutions provider
Fidelity National Information Services Inc.
) has agreed to divest its healthcare benefit solutions business to
Lightyear Capital, a private equity firm, for $335 million in cash.
Fidelity will part with the Consumer Driven Healthcare Solutions
and Health and Financial Network Solutions, which cater to the
consumers, healthcare providers and payers by providing services in
the form of benefits administration, account processing and payment
fulfillment. The company expects to complete the procedure by the
end of the third quarter of 2012.
Fidelity noted that the divestiture would help it to focus on
its core payment solutions and services segment for financial
institutions. The leading banking and payments technology solutions
provider has a strong clientele of financial institutions.
The Healthcare Benefit Solutions Business, a part of the Payment
Solution Group segment, contributed $120 million to the total
revenue and 5 cents per share to the adjusted earnings in fiscal
2011. As a result, the company lowered its fiscal 2012 earnings
guidance by approximately 7 cents and added that fiscal 2013
results would not be impacted by the sale of the business.
Moreover, Fidelity expects the divestiture to negatively impact
earnings for the upcoming second quarter by approximately 2 cents.
However, the company expects to receive $220 million in after tax
proceeds from the deal. Additionally, Fidelity expects
approximately $55 million in after-tax GAAP losses when the sale is
completed in the third quarter.
We believe that the company's focus on the core segment of the
Financial Solutions Group ("FSG") is a prudent measure that should
offset the sluggish growth in its Payment Solutions Group ("PSG").
In fiscal 2011, revenue from the FSG group increased 9.8% on a
year-over-year basis while PSG was up 0.5% over the same period of
time. The same phenomenon was repeated in the first quarter of
2012, where FSG revenue rose 7.0% year over year while PSG revenue
We believe that Fidelity's commanding position in the financial
services market, increasing international exposure, recurring
revenue model, diversified product portfolio, cost synergies from
acquisitions and loyal customer base will drive growth over the
long term. We also believe that Fidelity's expansion into emerging
markets such as Brazil and Europe will drive organic revenue growth
However, increasing consolidation in the banking sector, a
challenging environment for the Payments Solutions business and an
uncertain regulatory environment are the primary headwinds, in our
We maintain our Neutral recommendation on a long-term basis (for
the next 6 to 12 months), primarily due to a highly leveraged
balance sheet and intense competition from other major players such
Currently, Fidelity has a Zacks #3 Rank, which implies a
short-term Hold rating (for the next 1-3 months).
FIDELITY NAT IN (FIS): Free Stock Analysis
FISERV INC (FISV): Free Stock Analysis Report
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