March 2009 - Fifth Third Bancorp (Nasdaq: FITB) and Advent International announced today that they have signed a definitive agreement whereby Advent International will acquire a 51% interest in Fifth Third’s processing business through the establishment of a joint venture that values the new company at approximately $2.35 billion before valuation adjustments by either party. Fifth Third will retain the remaining 49 percent interest in the new company, Fifth Third Processing Solutions, LLC.
Pursuant to the agreement, Fifth Third Bank (OH), an indirect wholly owned subsidiary of Fifth Third Bancorp, will contribute the assets and operations of Fifth Third’s merchant acquiring and financial institutions processing businesses to a new limited liability company (“LLC”). The LLC’s capitalization prior to the purchase of this interest will include senior secured notes payable to subsidiaries of Fifth Third in the amount of $1.25 billion. Advent will pay Fifth Third $561 million in cash for a 51 percent ownership interest in the equity of the LLC and for certain put rights. Additionally, Fifth Third will receive warrants in the new company exercisable in certain circumstances. Fifth Third estimates the valuation adjustments related to these warrants, the put rights, and minority interest discounts may reduce its implied valuation of the business by an estimated $50 million. The agreement is subject to certain potential purchase price adjustments. The terms and conditions of the transaction are more fully described in Fifth Third’s Form 8-K filed on March 30, 2009. The transaction will be accounted for under Financial Accounting Standard 160, “Noncontrolling Interests in Consolidated Financial Statements.” Fifth Third will retain its credit card issuing business, including retail credit card and commercial multi-card services.
“Advent has a long and impressive record of investing in and growing payment processing companies to achieve exceptional results, and we believe that its investment will significantly enhance the ability of our processing business to generate even stronger results in the future,” said Kevin T. Kabat, Chairman, President and CEO of Fifth Third Bancorp. “Partnering with Advent will provide the processing business with access to additional capital and resources that we believe will create significant new opportunities and incremental growth in that business. At the same time, our ability to offer the best-in-class capabilities of Fifth Third Processing Solutions to our banking customers will continue to be a key entry point for us in creating new relationships and in expanding existing relationships.”
“This transaction represents the culmination of work we began last summer as part of our capital plan announced in June. It is expected to generate meaningful additions to our tangible common equity and Tier 1 capital ratios, reflecting the value of the business as a whole, while at the same time enabling us to retain significant ownership in the joint venture and its ongoing creation of value. The cash proceeds represent 13 times the earnings divested. And the valuation of the business, at 3.3 times 2008 net revenue, compares favorably with large publicly-traded processing businesses. The expected equity and capital contribution reflects not only the economic value of the interest being sold, but also the economic value of our remaining interest in the business. As a result, this transaction represents a highly efficient source of capital for our shareholders relative to capital alternatives in the current environment.”
“The transaction significantly enhances the level and composition of our already very strong regulatory capital position. We believe our strengthened capital position, in combination with our strong credit reserves and earnings power; provide us with the resources and the ability to withstand a more difficult economic environment should that occur.”