Global Payments Gets Needed Scale With TSS: CEO Sloan (Podcast)

payments industry. Global Payments today agreed to buy Total System Services in a deal valued at twenty one point five billion dollar, the payment industries third mega merger. Of the deal, we can get the details from the person himself, Jeff Sloan, CEO of Global Payments. He joints is here in our Bloomberg Interactive Broker studio. Jeff, thanks so much for joining us. I know it's a busy, exciting day for you guys at your company. I know you and t ss I've

been looking at each other for a while. Why do the deal now? Well, I think the rate of innovation and payments is only accelerated if you look. For example, here in New York as well as the United States. Contact lists. The announcement you've seen from He's in JP. Morgan coming to the subways in Manhattan, UH in the next month or two is just one example of the rate of continued innovation and acceleration of change and payments. Therefore,

it's important that you have scale. It's hard to make those investments and all the new products and services that are the most attractive to our merchant base without having enough scale to fund those in the first place. So it's pretty clear over the last few months that the bar for scale is ever higher. So is scale with respect to which business Because it's interesting that there is overlap with you in Total System Services TSS when it

comes to catering to smaller businesses. They do, though, have a business processing payments for larger financial firms. How do you get scale with that versus just diversification At that point, the servers don't know the difference. It's kind of the answer at the end of the day. So we're gonna be making the same kind of investments capital wise as a technology matter, into the same kind of environments, whether it's on the cardish who are side or the merchant side.

Global Payments does this already today, so there's a lot of similarities between our two business. For example, we have about five fies financial institutions that are customers of Global Payments to stay globally, TEASES has about nine hundred, So there's a lot of overlap in terms of the products and services that we provide those large complicated financial institutions

that TEASES does as well. Number one. Number two, there's obvious overlap between the issuer business that you're asking about at t S two and what we do a global payments. So, for example, the same folks, the same financial institutions who are buying the issuing business are also providing referrals to the merchant business. The same types of technologies that we deploy the merchant business are also being deployed in the

issuing business. That's particularly true overseas, but increasingly if you look at these other deals, also true in the United States. Why five Serve and why Fidelity, but Debbi Gateways is part of what they do is to emulate what we'll be able to do on the issuing side, combining issuer processing with acquire processing, so that means if you use your credit card or merchant I know it's you from the issue are side, and then I know where you're

spending it from the acquire ring side. That's what those debic gateways do and that's what a combined global payments and tiesis will do. So if I'm a fintech M and a banker, this is a great year for me. Three three deals so far give our Just give us a sense of how the structure of your industry, how fragment is it still? Do you envision more consolidation? Is this a global consolidation play? Just give us a sense of how the industry structured. So the nice thing about

the industry is it consistently reinvents itself. So it's a scale business. So there's always going to be more consolidation. But part of what striving change. To go back to your first question is the rate of techno technological innovation. So think about it. Apple was not out there with Apple Pay five years ago. Square didn't exist, ten years ago. Google didn't have Android Pay, Samsung didn't have Samsung Pay. So think about the folks who have come into the business.

So today, for example, you have Stripe for startups and small merchants. You have Square, which is a public company as well. You've got plenty of examples adding in which is a public company in a coom in Ireland, but it's worldwide in scope. You have plenty of examples of companies say that either didn't exist five or ten years ago or didn't remotely look like what they look today.

So the future is very bright for the industry. There's going to be continued consolidation because of scale functions that we've been describing, but there's always gonna be continued new entrants. I think at the end of the day, the ability to provide banking like services through open API s, the scale you get in cloud based and SAS computing, which we're very focused on at Global Payments and Teasis, that's

what's driving the rate of innovation you're seeing today. So do you expect to eventually expand out into banking like services for some of your clients, lending to some of your smaller merchants. Now, where we draw a line, and some people like Square actually don't draw this line. But where we draw the line is we're independent. We're not a bank by ourselves um at Global Payments, and neither is TASiS. In fact, we don't want to compete with our customer base, so it's very important for us to

stay out of functions in banking. That's not true for some of our competitors, like a Square, which provides direct lending in conjunction with their parties. We actually provide referrals of merchants who are looking for loans out to f eyes our partners. That's our job, rather than provide that are directly ourselves. So then how do you respond to people who say, right now, smaller midsized merchants, they just

want to simplify what they do. They don't want to have to figure out uh sort of bespoke of financial payments processing system and then figuring out their relationship with a banker. And so we'll just go to square. What do you say to people who are who are wondering about that. So we have the same complete ecosystem that Square has. The difference with us is we have it from the small guy to the big guy, and we have it in a hundred countries where squares predominantly as

a pure revenue matter, proviently in the United States. So we have all that. So today a Heartland, which is one of our businesses sales representative can walk into a small merchant here in Manhattan and on your phone, on that person's phone, can underwrite that merchant, get that merchant up and running, provide a loan, provide payroll, you name it, we have it. So we have the ecosystem that they have. The difference with us is we're more multinational in scope.

We can go from the really small guy we call it the taco truck up to Taco Bell, which is one of our customers. So we can do at the small level as well as the enterprise level, really in a hundred countries. Jeff Slan, CEO of Global Payments, joining us in a Bloomberg in Actor broker studio talking about his a big deal today. So, Jeff, you know, twenty

one and a half billion dollar all stock deal. Your stock is kind of hanging in there, only down to two percent today, So that's a pretty good sign that the market likes what they're hearing. What kind of synergies did you promise the market revenue and cost synergies, because I'm assuming you've got to deliver some creative EPs. Yeah, so it is a creative at the boxer, right, we said it's mid single digits a creative to the combined

company in and double digits a creative thereafter. So we think it's a very attractive financial profile, very similar to

what we announced in Heartland. Actually when we did that deal in two thousand and fifteen, what we said on our call this morning was at least three hundred million of expense synergies and at least a hundred million of revenue synergies within three years, and we really do plan to get most of the expense integration done in the first eighteen months, so we do expect a pretty good

ramp on the synergy expectation. And to give you a sense, when we did the Hartland transaction, UM, we talked about a hundred twenty five million in synergies and we ended up producing foreign x US of that. So a very good track record, UH in delivering those energies. Thank you so much for being here in congratulations on the deal. Jeff Sloan is chief executive Officer of Global Payments, joining

us here in our Blue Reactor Interactive broker's studios. His company agreed to buy Total System Services in a deal valued at twenty one and a half billion dollars looking at the ten year up ten thirty seconds today, pushing that yield down to two point to eight percent. How much lower can yields go? We go to our next guest, Eric Stein. Eric is a portfolio manager and co director of Global fixed income at Eaton Vance et Van says

about four D sixty billion dollars under management. They're located in Boston. Eric, thanks so much for joining us. How much you know what's also you know been in the front pages over the last several weeks have been the escalating trade tensions with China. How much of the action we're seeing in the treasury market is kind of reflecting that uncertainty. Well, first off, thanks for having me on.

I mean, I think if you look at all of two I was in nineteen, which also includes you know, the first quarter where risk markets were doing well and people thought were going to have at least a decent settlement with the China trade war in the short term,

treasure yields continued that this grind lower. So certainly, you know some of the action we've seen with yields continuing to decline over the past couple of weeks, I would say there are fears of global growth as well as the re escalation of the US China trade warm But for all of two thousand nineteen. You know, we have seen this very significant rally in the U S Treasury market. So we were just talking earlier about the inversion of

the yield curve. The fact that the gap between tenure and three month treasury yields is now inverted by the most since two thousand and seven, exceeding the lows reached back in March. Does this send a barish signal to you? So you know, look, it's something that you know, we and Vans have a big debate on, you know, does the yield curve matter or not. I certainly put myself in the camp that the yield curve does matter. I

think it's a market signal. I think people that dismiss it kind of do so at their own peril, uh know. That being said, I think sometimes there's an obsession about, you know, particular parts of the front end of the yield curve. So I'd look more at kind of you know, twos tens, twos thirties, things like that. At least the two thirties hasn't continued to invert, which to me is a is a good sign. Uh It's still relatively flat, but it hasn't kind of continued on the flattening that

we saw last year. But certainly, as you mentioned at the front end, you do see some inversion. So I think, you know, it's like any market signal, I would not ignore it. If I were the Fed, if I were someone looking at the economy, I would certainly, you know, take it seriously. So Eric, given where we are with these historically low rates, what are you doing with your

portfolio right here? Yes? So, Look, I think first off, from a you know, a treasury perspective, look to me that you know, the value in the treasury market is if you think that things are going to get worse from here, And I said, the treasure markets pricing in a pretty bad outcome. Maybe things do get worse, so maybe there's some safety value. But to me, the the only really sector of the treasure market I really like would be tips on a kind of nominal treasury edge basis.

I think there's a lot of policies by the Fed as well as the trade war, a lot of policies that should lead to somewhat higher inflation, so I think duration hedge tips could be attractive. Look, I also think parts of the emerging market bond complex look attractive as yields are so low, not only in the US, but but in you know, Germany, UK, Japan, really all the

whole developed market world. Uh. It makes places like emerging markets that, yes, there's volatility, but if you look at, you know, what yields you're getting on emerging market assets versus treasuries or their developed market bond markets, I think those are attractive. And I think if we're back, you know, if we're still in this goldilocks not too hot, not too cold world, it's actually a pretty good environment for carrying and some of the riskier parts of the fixed

income markets. So Eric, how much is this thesis predicated on the idea that the Federals will cut rates again in the near term. So I don't think you need to cut for emerging markets assets to do well. I certainly think if the Fed ward had turned, you know, very hawkish and and people are talking about rate high, that would be that that would be negative for sure.

But I think if if rates just kind of stay where they are, uh in in the U S that's you know, whether it's front end um you know, or back into the curve, kind of stay where they are, I think a lot of these assets and emerging markets. You know, investors will once again be searching for yield, and they'll need to invest in, you know, somewhere else

other than U S. Treasuries. I guess another way to ask this is, you know, if the Federal, if the vessors are does cut rates as the market expects it to do within the next nine months, do you think that will be an additional support to risk assets or that it will harm them because it will send a message that is somewhat barish on the U S economy.

Very good question. Look, I've you know, I've never been in the school thought, and I used to work at the New York FED that the Fed knows something that let's say, the markets don't, and so, you know, sometimes I think there could be confusion in policy statements, which which can lead to markets, you know, not behaving as you would expect them to. I you know, US rates going down, a risk assets not doing well. Maybe market was expecting more. Maybe the statement, um, you know, it

wasn't as as devilish as people were expecting. So you know, I can see that I'm not you know, as I said, of the view that the FED really knows more than than other than you know, other market participants. UM, you know, I do think that. UM, you know, if there are lower rates, you know, certainly that helps. I also think something else is going to start to get talked about, as the US dollar. I've actually been surprised with with the strength of the US dollar that we started to

see some weakness last week. Uh you know, we've seen lots of tweets from President Trump about the Fed. I've actually been surprised we haven't seen more tweets about the US dollar. And so if the Fed gets more debblished, that would be another uh you know, reason for the US dollar to start the weekend, which should help emerging market assets. Eric Stein, thank you so much for being with us. Eric Stein's portfolio manager and co director of

Global Fixed Income and EAT Advanced. For a few days now, a growing number of Wall Street analysts are coming out with predictions for how much profits could drop at some of the big U S. Tech companies in the case of an escalation in the U. S. China trade war. Joining US now to talk about how realistic this is, how significant the losses could be. David Garretty, chief market strategist for leid Long Co, also a partner at bt block. So first, let's just start with are we entering a

tech war, and if so, what does that mean. No, certainly we're rendering into widening an era of widening tariffs, and certainly they're not just widening, but they're also growing greater. And while tariffs are paid by the US consumers here relative to Chinese goods, the fact of the matter is that you are most likely are going to see US products that are available in China think Apple iPhones as

being potentially priced out of the market. But also at the same time, we're already operating in an environment between the US and China where China announced back in two thousand and fifteen a ten year plan. Communist countries like to do these things ten year plans, but there's was made in China, and in that they laid out goals to be leaders in ten tech categories all the way from artificial intelligence through aviation. How they were going to

get there obviously has been unfolding over time. These tariffs that we're seeing right now in some respects as a reaction to that. But tariffs or no, I would still say that we're in a tech cold war between the United States and China, or more broadly, between China and

the US and its allies. So in terms of a tech cold war, I think it really ratcheted up for a lot of investors when the US government puts, you know, announce some sanctions on the Huahwei and you think about the global supply chain and what that means for Huahwei and what that means for US tech industries. The implications are just extremely broad. What is the risk you think if if these sanctions do go through on Huahwei, that China will retaliate, say on an Apple, and do something

similar there. Well, I mean, China, certainly, just to save face, is going to have to taliate. And and certainly you know that they've been beating the drums in this regard

directly and indirectly. Um. But if China were to go through and actually you know, take extreme action against you know, a household brand name like Apple, um, you know, the fact remains is that China is still very, very heavily dependent upon US suppliers of semiconductors, and for the time being, semiconductors are a fundamental or foundation technology as far as technology is concerned across a wide range of applications. So

China would do this obviously to their own detriment. But nevertheless, I fully expect that because of the kabuki theater that gets involved in terms of tariffs UH and the need to save face. UM. Not to say that Trump doesn't engage in face saving moves himself, but I think very much so that we're likely to see some sort of

major response and reaction. Clearly, we've seen in terms of technology stocks after they came out with first quarter results back in April, you know, they pretty much kind of rolled over, and we've already seen a pullback UH in terms of the Chinese tech names as well. So the prospect of a non global market or a bifurcated market certainly is working to the detriment of the valuation of both US as well as Chinese technology stocks. Who is

going to suffer more, the US or Chinese tech companies? UM. I would make the argument that, you know, at the end of the day, it's likely to be China to the extent that they're not going to have a larger end market available to them. Granted, you know, one point three billion people in China are a fair number of

people to sell to. In the first place. But clearly, if you're trying to make the investments necessary to scale up, far better if you had an integrated global market of you know, seven trillion of seven you know, seven trillion consumers, seven billion consumers to sell into UH than than a smaller Chinese market. So, David, one of the big big

global growth areas and technology is five G UM. And I think when this Huahwei news came out and trade tech wars started getting discuss us, the concern is any trade tech war could really impact the global development of five G. Do you think that's a valid concern? Now, it's very much of a valid concern. And when we look at five G, you know, we're we're looking at a platform technology. I mean, certainly the US and US technology companies were very successful in the four G environment.

Witnessed the rise of Apple UH in terms of the services they offer. Now five G prominence is a twenty times speed increase over four G. And now what this is going to enable is a wide range of possibilities. Huawei has been already deemed by the Defense Innovation Board and an advisory council to the US Department of Defense to potentially have a first mover advantage in five G. Five G sets the rules by which the game is

going to be played going forward. So what's happening with five G is critical to the prospects not just of the U S economy, of the U S technology companies,

but the global economy. And from that stay and point, you're already seeing, you know, concessions being made by American intelligence officials and telecoms executives saying that they think in the future, forty of networks over which businesses, diplomat, spies, and citizens do business are going to be Chinese five G. They're deeming these to be dirty networks, to the extent that in China it's a state controlled economy and businesses

do what the state wants. Just real quick here twenty seconds. Are there any U S tech companies immune to the ongoing or more immune to the ongoing trade tensions? I think, you know, in terms of companies who are developing cybersecurity initiatives, I mean, certainly that's an evergreen business, always has been. But I think the case for owning cybersecurity names only

gets stronger in this type of an environment. UH names that have been competing directly albeit they're not US technology names, but if you look at Ericson and Nokia, they traditionally had been very strong telecommunications infrastructure equip suppliers. They two are gonna be playing in five GEO would expect them to see a benefit from this interesting trade. Tech wars will certainly keep our eyes on that that is not anybody's best interest. David Garretty, chief market strategist from Laidlaw

and Company, also a partner at bt Block. There were elections in the European Union and if you read three different publications about what the outcome was, you will get three different stories. Either the Centrists held steady, there was there were gains made by the populists, or it is just a muddle. That is par for the course. Right now, let's bring in Clive Crook to sort of pass through all of this and give us a sense of what the big takeaway is. He is an editor for Bloomberg Opinion. Clive,

so come on in here. What's your big takeaway? Which narrative is right when you know you're right? Is a muddle, and I think it's because the outcome is pretty complicated. You know, on the one hand, people are relieved that you know, the far right euroskeptic parties didn't do better than they did. I mean, ahead of the elections, there was a lot of anxiety that those groups would see a real breakthrough and that didn't happen. They did actually

did it quite well. I mean, they gained representation in the European Parliament, but it wasn't the sort of overthrow of the center that some people were fearing. So that was the good news, and that's it were one headline. But the other thing is that the thing that prevented the far right eurosceptic parties from doing better than they did was a very strong showing from as it were, centrists,

insurgents and talking about liberals and Greens. They did very well at the expense of the traditional center left and center right group things. So the way I would sum that up is to say, what you've seen is a sort of surprising sort of fragmentation of the center. It isn't that the center has been defeated by the far right, which is what I think a lot of people were worried about. The far right has made limited progress and

the center has divided. And I think this matters because you know, when you look at what's going to happen in the European Parliament now when you have all the jocking for position for top jobs in the commission Um, the old rules about who's in charge aren't going to apply, And I think you're going to see this fragmented center with these new guys, you know, lots of new Liberals, lots of gleans. That process of getting to a new leadership structure in Brussels is going to be very difficult.

So my take on the whole thing is that this is not such a great result for the European project. Even though the euroskeptics didn't try it, this fragmentation of the center is bad news. I think for people who want, you know, Europe to recognize problems, set priorities and start working on solutions, I think that's to be harder now than it was before. So Cloud, let's take a look at the UK. It looks like the Brexit Party had strong performance. What are some of the takeaways as from

what we saw in the UK elections? Maybe what that means for the Brexit process overall? Well, you're not kidding, I mean, the Brexit Party didn't sensationally well in these elections. Now, obviously. You know, Britain is is a special case because Britain is in the throes of this Brexit process. I mean, in many ways it shouldn't have even been voting in these elections. So what that result means for Europe is

a sort of second order question. I think the main thing is what the main question is what does a triumph for the Brexit Party means for British politics? And it really was a triumph. I mean, labor was killed in these elections and the Tories were just annihilated. This was the worst national election result the Tory Party has suffered, I believe in its history. I mean it was as bad as that they came fifth in this in these elections.

This is the ruling party. Um, this shed no like what you know on how the Brexit met is going to be resolved. I mean, terrace, the mas or Essential's resigning. The leadership contest the Tories is now underway, but nothing has changed. You know, there's no majority in the British Parliament to do anything. Um, the sort of steady majorities against everything. So that kind of paralysis is not going to be resolved one way or the other by this

Brexit Party. Performance in the European elections. I mean that has in effect no direct implications for what's going on in the House of Commons. I think the situation in Britain is still as unpredictable as it was before. I mean, I can you know, you could make a case that any any outcome, you know, Brexit is tenseled, a hard Brexit with no deal and everything in between, all the

things still on the table, I believe. Yeah, so the model continues in but I feel like there's a takeaway you can actually unify European Union elections more broadly as well as the Brexit specific results to sort of go back to exactly what you were saying, Clive, which is fragmentation within the middle and a hardening on the more extreme ends of it. And I'm just wondering how much that's going to push the center toward a more extreme view.

I mean, we're sort of seeing that with respect to Brexit discussions as well, where there seems to be growing momentum for a second referendum or hard Brexit. It's sort of the two polar opposite kind of gaining steam. And I'm just wondering what you're seeing with that type of attitude within the European Union. More broadly, well, you know, I don't really look at it that way. I mean, I don't really look at it in terms of this

grouping um in the European Parliament. Is it were this broad center that includes you know, the traditional center left and the traditional center right that's got hammered and elections and the new as it were, these insurgents, these new parties like you know, Macron's movement, that they will be part of the liberal grouping um, and the Greens of course they did very well also, But I don't see that that points you towards a single coherent ideology which

is either more or less extremes. The theme I neither takeaway is that there isn't going to be a single theme or uh, you know, coherent set of policy. But this is something the European parliaments has always struggled to come up with, you know, a coherent argument of the kind that you see in typical national elections. You know, there's a ruling party arguing acts and a principal opposition party arguing why, and the elections organized themselves around those

d dates. Well, you aren't going to see that in Europe. You haven't seen it before, and now now it's going to be even harder to imagine because of this fragmentation. So I think, you know what European voters are going to see when they look at what's going on in the European Parliament is you know, a mess, you know,

an inconclusive mess. And the competition over who gets which job is going to really demonstrate that, I mean, really underlined this problem that there is no coherent political character in this in this assembly. Uh this you know, the the old coalition between the center LA and the center right try to provide that kind of you know, organizing theme. That's going to be harder now than it was before. So I think the so I think the takeaway Clive is for me at least a mess. That's what we

got from these elections. So anyway, Yeah, Clive Crook, thank you so much, Editor Bloomberg Opinion based in Washington, d C. Thanks for listening to the Bloomberg p m L podcast. You can subscribe and listen to interviews that Apple Podcasts, SoundCloud or whatever podcast platform you prefer. I'm Pim Fox. I'm on Twitter at pim Fox. I'm on Twitter at Lisa Abramo wits one before the podcast. You can always catch us worldwide on Bloomberg Radio