Why Are Mastercard and Visa in a Bidding War for Earthport?

Last month, Visa (NYSE:V) revealed it was in the process of buying a smallish British payments company called Earthport for 198 million pounds -- about $250 million. Not so fast, said Mastercard (NYSE:MA), which just swooped in and bid 233 million pounds -- about $305 million. That's pocket change for either one -- the smaller Mastercard has a market cap north of $200 billion -- but that doesn't mean it's an insignificant purchase.

In this segment from the Motley Fool Money podcast, host Chris Hill and Fool senior analysts Aaron Bush, Ron Gross, and Jason Moser discuss the reasons why both giants think this acquisition makes sense and weigh whether or not one suitor or another has any advantages.

A full transcript follows the video.

This video was recorded on Jan. 25, 2019.

Chris Hill: In late December, Visa announced the acquisition of Earthport, a British payments company, for roughly $250 million. On Friday of this week, MasterCard announced the acquisition of Earthport for $305 million. Jason, what happened to the deal with Visa? 

Jason Moser: It looks like we've got a good old-fashioned bid up, Chris! It's just a matter of who wants it more. Right now, it seems like it's MasterCard. That's a 10% premium to what Visa was offering. Like we said with Visa a month ago with this deal, it's a drop in the bucket for either company. They could acquire this company today, write the whole thing off next year, and nobody would bat an eye. It's ultimately about getting a better cross-border payments business for either Visa or MasterCard. If you look at MasterCard, the cross-border payments volume grew 17% last quarter. Cross-border payments are transactions that involve parties in two or more countries. As we know, those are becoming more prevalent as the world gets smaller and electronic payments continue to grow. 

We'll see if Visa wants to counter MasterCard's bid there. It seems like, at least, the board with Earthport was a bit more on board with being a part of the MasterCard family. But we will see. Either way, you can't be a loser if you're in either one of those two networks.

Hill: Can I just say, Earthport is a stand-alone public company, and a month ago, it was about $7 a share. Now, it's about $36.

Moser: That's a very good point to note.

Hill: It's good to be an Earthport shareholder.

Moser: Well, it is now. It wasn't about two months ago because the E.U. is tightening down on these regulations. It's going to make these cross-border transactions less profitable. Earthport was stuck between a rock and a hard place. For them to get in a nice little situation like this with two companies competing for them, that's just icing on the cake.

Canadian Pacific Railway Limited to Post Q3 2018 Earnings of $3.16 Per Share, Desjardins Forecasts (

Canadian Pacific Railway Limited (NYSE:CP) (TSE:CP) – Desjardins lifted their Q3 2018 earnings per share (EPS) estimates for Canadian Pacific Railway in a research note issued to investors on Monday, October 8th. Desjardins analyst B. Poirier now forecasts that the transportation company will post earnings of $3.16 per share for the quarter, up from their previous estimate of $2.79. Desjardins also issued estimates for Canadian Pacific Railway’s FY2020 earnings at $13.61 EPS and FY2021 earnings at $15.05 EPS.

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Canadian Pacific Railway (NYSE:CP) (TSE:CP) last released its quarterly earnings data on Wednesday, July 18th. The transportation company reported $3.16 earnings per share (EPS) for the quarter, beating the consensus estimate of $2.40 by $0.76. Canadian Pacific Railway had a net margin of 33.92% and a return on equity of 27.87%. The company had revenue of $1.75 billion during the quarter, compared to the consensus estimate of $1.73 billion. During the same quarter in the prior year, the firm posted $2.77 earnings per share. Canadian Pacific Railway’s revenue for the quarter was up 6.5% on a year-over-year basis.

Several other equities analysts also recently issued reports on the stock. Stifel Nicolaus upgraded shares of Canadian Pacific Railway from a “hold” rating to a “buy” rating in a research note on Friday. ValuEngine cut shares of Canadian Pacific Railway from a “buy” rating to a “hold” rating in a report on Thursday. BMO Capital Markets reaffirmed a “buy” rating and issued a $260.00 target price (up from $242.00) on shares of Canadian Pacific Railway in a report on Monday, October 8th. Cowen upped their target price on shares of Canadian Pacific Railway from $225.00 to $236.00 and gave the company an “outperform” rating in a report on Monday, October 8th. Finally, Stephens reaffirmed a “hold” rating and issued a $239.00 target price on shares of Canadian Pacific Railway in a report on Monday, October 8th. Three research analysts have rated the stock with a hold rating, sixteen have assigned a buy rating and one has issued a strong buy rating to the company. Canadian Pacific Railway currently has an average rating of “Buy” and an average price target of $237.38.

NYSE CP opened at $207.39 on Thursday. The company has a debt-to-equity ratio of 1.21, a current ratio of 0.57 and a quick ratio of 0.48. Canadian Pacific Railway has a 1 year low of $166.36 and a 1 year high of $224.19. The firm has a market capitalization of $30.22 billion, a price-to-earnings ratio of 23.53, a P/E/G ratio of 1.78 and a beta of 1.07.

The company also recently declared a quarterly dividend, which will be paid on Monday, October 29th. Investors of record on Friday, September 28th will be issued a dividend of $0.4999 per share. This is a boost from Canadian Pacific Railway’s previous quarterly dividend of $0.44. This represents a $2.00 annualized dividend and a yield of 0.96%. The ex-dividend date of this dividend is Thursday, September 27th. Canadian Pacific Railway’s dividend payout ratio is currently 22.89%.

A number of hedge funds and other institutional investors have recently bought and sold shares of CP. Wells Fargo & Company MN raised its holdings in Canadian Pacific Railway by 5.7% during the first quarter. Wells Fargo & Company MN now owns 72,859 shares of the transportation company’s stock worth $12,859,000 after purchasing an additional 3,914 shares in the last quarter. Dimensional Fund Advisors LP raised its holdings in Canadian Pacific Railway by 6.2% during the first quarter. Dimensional Fund Advisors LP now owns 40,683 shares of the transportation company’s stock worth $7,181,000 after purchasing an additional 2,382 shares in the last quarter. BB&T Securities LLC raised its holdings in Canadian Pacific Railway by 18.1% during the first quarter. BB&T Securities LLC now owns 10,794 shares of the transportation company’s stock worth $1,905,000 after purchasing an additional 1,656 shares in the last quarter. UBS Group AG raised its holdings in Canadian Pacific Railway by 234.5% during the first quarter. UBS Group AG now owns 155,729 shares of the transportation company’s stock worth $27,487,000 after purchasing an additional 271,502 shares in the last quarter. Finally, United Capital Financial Advisers LLC purchased a new position in Canadian Pacific Railway during the first quarter worth about $216,000. 65.08% of the stock is owned by hedge funds and other institutional investors.

Canadian Pacific Railway Company Profile

Canadian Pacific Railway Limited, together with its subsidiaries, owns and operates a transcontinental freight railway in Canada and the United States. The company transports bulk commodities, including grain, coal, potash, fertilizers, and sulphur; and merchandise freight, such as finished vehicles and machineries, automotive parts, chemicals and plastics, petroleum and crude products, and metals and minerals, as well as forest, industrial, and consumer products.

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