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Visa agrees to buy Visa Europe for as much as $23.4 billion

Visa Inc., the world's largest payments network, has agreed to acquire Visa Europe Ltd. in a deal valued at as much as 21.2 billion euros ($23.4 billion) to unify the brand globally after eight years as separate companies.

FILE - In this May 9, 2012 file photo, a Visa credit card is tendered at the opening of the Superdry store in New York's Times Square. More than 35 percent of Americans have debts and unpaid bills that have been reported to collection agencies, according to a study released Tuesday, July 29, 2014, by the Urban Institute. (AP Photo/Richard Drew, File)
FILE - In this May 9, 2012 file photo, a Visa credit card is tendered at the opening of the Superdry store in New York's Times Square. More than 35 percent of Americans have debts and unpaid bills that have been reported to collection agencies, according to a study released Tuesday, July 29, 2014, by the Urban Institute. (AP Photo/Richard Drew, File)Read moreAP

Visa Inc., the world's largest payments network, has agreed to acquire Visa Europe Ltd. in a deal valued at as much as 21.2 billion euros ($23.4 billion) to unify the brand globally after eight years as separate companies.

The transaction includes $18.2 billion up front and as much as $5.2 billion more after the fourth anniversary of the deal's completion, the firms said Monday in a statement. The purchase ends years of speculation among analysts about whether the companies, which split in 2007 ahead of the U.S. firm's initial public offering, would reunite.

The lack of meaningful contributions to earnings from Europe has long been seen as a weakness for Visa and an advantage for smaller competitor MasterCard Inc., which owns its European business. Foster City, Calif.-based Visa relies more on the United States, which accounted for 54 percent of revenue in fiscal 2014, compared with 39 percent for MasterCard.

"This transaction is beneficial for financial institutions, acquirers, merchants, cardholders, and other partners, as well as for our employees and shareholders," chief executive officer Charlie Scharf, 50, said in the statement.

Visa plans to issue from $15 billion to $16 billion in debt to help fund the deal, which is expected to be completed in the fiscal third quarter, which ends June 30, according to the statement. The acquisition is subject to regulatory approval. The additional $5.2 billion is contingent on achieving net revenue goals in the 16 quarters following the deal's completion.

Visa Europe is owned by more than 3,000 banks. Chirantan Barua, an analyst with Sanford C. Bernstein, said British lenders including Barclays Plc, Royal Bank of Scotland Group Plc, and HSBC Holdings Plc should initially benefit.

"Although we see this as a positive in the short term for the U.K. banks, as this represents a boost to capital, we do not see this as a free lunch," Barua said in a note to clients. The British banks "will see their fee income margin start to be squeezed and we wouldn't be surprised if Visa tried to increase the margins in Europe at the expense of the banks."

Visa also reported that fiscal fourth-quarter profit rose 41 percent to $1.51 billion, or 62 cents a share, from $1.07 billion, or 43 cents, a year earlier, when it took a $283 million charge for litigation expenses. Goldman Sachs Group Inc. said in a note to clients that Visa's earnings forecast for the current fiscal year is "slightly disappointing."

A strengthening U.S. dollar has crimped earnings abroad, and the company expects that currency will have a negative impact of 3 percent on revenue growth next year. Revenue for the full fiscal year rose 9.3 percent to $13.9 billion.

A combination may bring short-term risks to Visa and benefit MasterCard, according to analysts including Chris Hickey of Atlantic Equities. Visa probably will raise prices after a deal is completed, and it could be disruptive as the U.S. company integrates operations with its European counterpart, Hickey said before the deal was announced. Visa Europe managed more than 500 million accounts and processed more than 16 billion transactions last year, according to its annual report.