It’s Worldpay déjà vu for industry professionals who knew the merchant payments processor before its $40-billion-plus acquisition by Fidelity National Information Services in 2019.

FIS announced Monday that it’s reviving Worldpay by way of a spinoff, even placing the same executive at the helm. Former Worldpay CEO Charles Drucker, 59, is coming out of retirement to lead Worldpay. The plan is to spin Worldpay off into a separate publicly-traded company in the next 12 months, though it’s still possible it will be purchased in the interim.

For Wall Street analysts who follow FIS, there were a lot of questions Monday about what will happen to the cost synergies and strategic revenue benefits that were supposed to flow from the once ballyhooed merger now being ditched. The 2019 combination was aimed at increasing Worldpay’s distribution footprint and accelerating its entry into new geographic markets, a 2019 press release said.

“It’s a sign that the acquisition was a huge failure,” Dan Dolev, an analyst at Mizuho Securities who has been calling for a spinoff of the merchant business for years, told Bloomberg in an interview. 

Despite the “promising” merger, FIS has “underperformed several payments peers,” Dolev said in a Monday note to his firm’s investor clients. While the tax-free spinoff faces hurdles, there are ways to make it feasible, he said. 

FIS landed $750 million in revenue and $900 million in expense synergies by the end of 2021 from the FIS-Worldpay combination, William Blair analysts said Monday in a note to their investment clients.

Not all of the expense synergies are likely to be recaptured, Oppenheimer analyst Dominick Gabriele opined in a separate note to that firm’s clients Monday.

Back to the future for Ferris

For FIS CEO Stephanie Ferris, who became CEO of FIS this month and was formerly chief financial officer at Worldpay, the move is a replay of past restructurings. She brushed off any concerns about losing benefits during a call the company hosted Monday with analysts to discuss the restructuring and lackluster fourth-quarter results.

“Charles and I feel very confident, given this will be the third time that we have spun it out, sold it and spun it back out, so we're really familiar with the cost structures and the benefits that come with putting it in and taking it out,” she said to analyst snickers on the call.

Before Worldpay was acquired by FIS, it was sold to Vantiv in 2018.

To avoid what Ferris referred to as “dis-synergies,” she said Worldpay will turn to commercial agreements with FIS to retain cost benefits and revenue gains that flowed from hooking up with Jacksonville, Florida-based FIS. The company is working on those commercial partnerships and will have more to say later, she said.

The key to increasing revenue at Worldpay is revising its capital structure so that it can once again engage in acquisitions, Ferris said. That may mean a return to a high-yield debt rating, which worked well for Worldpay’s acquisition tendencies before the purchase by FIS, she said. It couldn't achieve those benefits as part of FIS, which has strived to maintain an investment grade rating.

“Because of our lack of M&A, we haven't really been able to feed (Worldpay) enough product,” Ferris said on the call. “I would say broadly, we're really focused on continuing to drive more e-commerce into the segment.”

On that front, Worldpay will still benefit from its acquisition last year of the e-commerce company Payrix, which helped it cater more aggressively to small and mid-sized merchants. It will also continue to help Worldpay build its embedded payments and omnichannel plays to attract larger clients, Ferris said. 

Economic stress increases difficulty

Nonetheless, the FIS move comes at a moment of economic tension, with a possible recession looming. That won’t make pushing Worldpay out on its own easier. 

“We remain on the sidelines as 2024 is likely also a tough year given dis-synergies from spin/progression to normalized revenue growth levels,” Gabriele said in his note.

Ferris will be in the hot seat, with activist investors D.E. Shaw and Jana Partners looking over her shoulder, to usher in increased profitability at the two companies.

“New leadership at FIS has a lot to prove and internal execution remains key,” William Blair analysts said in their note.