Western Union has signed an agreement to buy a 15% equity stake in the digital payments company of Saudi Arabia’s STC Group for $200 million in cash.
Upon completion of the deal, following regulatory approvals, Western Union (WU) will pay an initial amount of $133.3 million for a 10% equity stake in STC Pay. Under the terms of the agreement, the world’s biggest money transfer company, will make a payment of $66.67 million if STC Pay obtains a digital banking license, which would increase its equity stake to 15%.
STC Pay, which launched a digital wallet mobile application in 2018, offers digital and financial services to individuals and companies to facilitate financial transactions and payments, and has more than 4.5 million users.
STC said that the proceeds of the deal will be used to finance STC Pay’s capital to enhance its internal resources and support its strategic and expansion plans. In the long-term, the financial impact is expected to be positive, the telecom operator said.
Furthermore, STC announced that it will inject $106.7 million as additional capital which would increase STC Pay’s capital to $387 million upon completion of the deal. The telecom operator will also inject another $214 million into STC Pay’s capital in the event that a digital banking license is received.
BTIG analyst Mark Palmer recently reiterated a Buy rating on WU with a $28 price target (34% upside potential), as he believes that the company’s traditional money transfer business is well-positioned to weather the impact of the COVID-19 pandemic. At the same time, its digital business is poised to continue to post strong growth and take market share as it capitalizes on the accelerated demand for online remittances resulting from the crisis, Palmer noted.
“While much of the conversation around Western Union in recent months has revolved around the acceleration of the company’s digital money transfer business amidst the COVID-19 pandemic, our non-consensus, bullish view on the stock continues to be underpinned by our belief that WU’s traditional brick and-mortar remittance business is likely to be more resilient than some bears have suggested,” the analyst wrote in a note to investors. (See WU stock analysis on TipRanks).
Meanwhile, WU shows a Moderate buy analyst consensus rating based on 3 Buys, 2 Holds and 1 Sell. With shares down 22% on a year-to-date basis, the average analyst price target of $24.67, provides investors with 18% upside potential over the coming 12 months.
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