Fifth Third Gains from Vantiv Stake Sell - Analyst Blog
May 09 2013 - 9:40AM
Zacks
Fifth Third
Bancorp (FITB) is likely to recognize a pre-tax gain of
approximately $225 million (around $145 million after-tax) in the
second quarter of 2013 from the sale of its 15% stake in
Vantiv Inc. (VNTV). The proceeds from the sale are
expected to aid Fifth Third in repurchasing its own common
shares.
Notably, Vantiv has priced a secondary offering of 38.6 million
shares of its Class A common stock, which are sold by shareholders.
Of the total, Fifth Third sold 15.6 million shares.
Moreover, out of the shares sold by selling shareholders in the
offering, Vantiv would repurchase 17.5 million shares. Therefore,
following these transactions, Fifth Third would record an
approximate 15% drop in its ownership position in Vantiv.
The stake sale by Fifth Third comes on the heels of the approval of
its capital plan by the Federal Reserve under the Comprehensive
Capital Analysis and Review process in Mar 2013.
Stake Sale in Detail
Following this secondary offering of 15.6 million shares of Class A
common stock, around 54.6 million Class B units of Vantiv Holding
LLC would continue to be held by Fifth Third. These may be
exchanged for Vantiv’s Class A common stock and a warrant, which
are exercisable as well as exchangeable into Vantiv’s Class A
common stock.
The remaining economic interest of Fifth Third in Vantiv’s future
earnings would be approximately 28%. Fifth Third realized $140
million (pre-tax) under the equity method earnings in the fourth
quarter of 2012 from its ownership in Vantiv, while first-quarter
2013 results included a pre-tax benefit of $34 million on the
valuation of the warrant, held by Fifth Third in Vantiv.
Notably, the underwriters of the offering have an option to buy an
additional 2.1 million shares of Vantiv’s Class A common stock,
including 0.8 million shares from Fifth Third. This option is only
for covering over-allotments and exercisable for 30 days from the
pricing date. However, if exercised, the impact on Fifth Third is
likely to be restricted to a maximum of 5% of the impact from the
initial sale.
The Back Story
U.S.-based Vantiv, formerly known as Fifth Third Processing
Solutions (FTPS), is a payment processing company dealing with more
than 12.9 billion payment transactions valued at $426 billion
annually.
Fifth Third had spun-off FTPS in 2009 following a joint venture
that was initiated between Advent International and Fifth Third
Bank, a subsidiary of Fifth Third. The company was named Vantiv in
Jun 2011. Notably, Vantiv Inc. opted for an initial public offering
of Class A shares of the company. The offering was completed on Mar
21, 2012.
Our Viewpoint
Any measures that would help optimize the balance sheet and share
buybacks is encouraging and represent an efficient use of funds.
Such actions would help create value for shareholders.
Going forward, with a diversified traditional banking platform,
Fifth Third remains well poised to benefit from a recovering
economy along its footprints. Its traditional commercial banking
franchise, diverse revenue mix, improved credit quality and
enhanced capital position serve as positive catalysts for the
stock. Further, we believe that its capital deployment activities
will boost shareholders’ confidence.
However, a low interest-rate environment, regulatory issues as well
as competitive pressures are the headwinds.
Fifth Third currently carries a Zacks Rank #3 (Hold). Some better
performing banks include JPMorgan Chase & Co.
(JPM) and State Street Corporation (STT), with a
Zacks Rank #2 (Buy).
FIFTH THIRD BK (FITB): Free Stock Analysis Report
JPMORGAN CHASE (JPM): Free Stock Analysis Report
STATE ST CORP (STT): Free Stock Analysis Report
VANTIV INC-A (VNTV): Free Stock Analysis Report
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