Mastercard outbids Visa for tiny firm Earthport

Few investors will have heard of Earthport Plc. But the company has just become the target in a bidding war between Mastercard Inc and Visa Inc.Earthport’s shares, listed on London’s small-cap Alternative Investment Market, quadrupled over the last four weeks, and rose 27% by 10:53am after Mastercard’s bid yesterday.The 21-year-old firm isn’t a startup, and despite its name it isn’t playing in the private space travel game. Earthport is a cross-border payments network. It uses a cloud-based setup to help banks and other financial firms transmit payments for their own customers as an alternative to Swift, the 46-year-old nonprofit co-operative that’s long directed the global flow of money.Yesterday morning, Mastercard offered 33 pence per share for Earthport in a deal that values the firm at £233mn ($305mn). That bested an offer Visa’s international arm made on December 27 and sent the stock to 35.3 pence in mid-morning trading. Earthport’s board deemed the Mastercard offer “compelling.”The duelling bids represent an abrupt windfall for Earthport’s long-suffering shareholders. In the two years before the Visa bid, the company’s stock skidded more than 60% as it struggled to generate revenue growth and dealt with a £5mn loss stemming from suspected fraud by an unidentified customer. In its 2018 fiscal year, Earthport recorded a loss of 8.5mn pounds on £32mn in sales.Under former chief executive officer Hank Uberoi, Earthport built a network of dozens of banks in more than 65 countries over years of shoe-leather dealmaking. Bank of America Corp, Japan Post Bank Co, and BNP Paribas SA are clients, as well as fast-growing fintech players such as TransferWise Ltd Last May, Uberoi stepped down as CEO and was replaced by Amanda Mesler.“Earthport isn’t known for the quality of its tech but a lot of players have discussed buying the company for its network over the years,” said Brad van Leeuwen, the head of partnerships at Railsbank Ltd, a London-based fintech firm.Cross-border payments are projected to exceed $30tn in 2022, according to Accenture. The credit card providers, which have long dominated processing payments for merchants, are pushing hard into this new terrain — Mastercard with its Send business, and Visa with its Direct offering.The battle for Earthport is yet another sign of how the arcane industry around payments has become rife with dealmaking. Last September, PayPal Holdings Inc bought Swedish payments firm iZettle for $2.2bn. Shares in Adyen NV, a Dutch firm that processes e-commerce payments, have almost trebled since its initial public offering last June.Three major investors in London-based Earthport — Miton Group Plc, Banque Lombard Odier & Cie, and Uberoi — have signed non-binding letters in support of the new offer, according to a statement yesterday. Together they hold about 13% of Earthport. Oppenheimer Funds Inc, which had pledged its 16% stake in support of Visa, is relieved of this commitment following the higher bid.After the Visa deal was announced, some shareholders had raised concerns that Earthport had not invited bids from a wider range of prospective owners. Now, two of the world’s best known finance firms are circling.Yesterday morning, Mastercard offered 33 pence per share for Earthport in a deal that values the firm at £233mn ($305mn). That bested an offer Visa’s international arm made on December 27.