The Reuters report said FIS could announce the spinoff this week as the company reveals the outcome of a strategic review it conducted in 2022 under pressure from hedge funds.
FIS launched the review in December 2022, as it underwent a change in leadership. The review reportedly involved a ‘comprehensive assessment’ of the company's strategy, businesses, operations, and structure, with the goal of improving results, shareholder value, and client services.
The parent company can unlock value for shareholders by allowing a subsidiary to be valued and traded separately, leading to higher market valuations. It can also offer tax benefits for the parent company, as the spinoff can create new tax entities that reduce the total tax liability.
In addition, spinoffs let parent companies spend more time focused on their core businesses. And as the Reuters announcement notes, merchant solutions account for 30% of FIS revenue, while its core banking solutions business makes up about 46%, with capital market solutions making up the rest. FIS's break-up would leave it with a core processing systems business, enabling transactions among banks and other financial institutions, as well as its capital markets division serving investment firms.
Lastly, spinoffs can simplify a company's structure, making it easier for investors to understand and value the business. FIS shares have seen a deduction in value since the company purchased Worldpay.
In January 2023, FIS has announced its partnership with Trust Bank, one of Singapore’s first digitally-native bank, to power real-time payment transactions.
Trust will use FIS’ Open Payments Framework (OPF), an ISO 20022 real time payments platform to facilitate transactions for the bank, including traditional and real-time payments. The cloud-based solution will help Trust scale its payments volumes, as the bank continues to become more prominent in the local banking industry.
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