The Western Union Company (NYSE:WU) began trading as a seperate entity for the first time today after being spun-off from First Data Corporation (NYSE:FDC). FDC shareholders had received on share of WU for each share of FDC that they owned, in a 765 million share tax-free distribution. Western Union also announced a $1 billion share buyback program to be completed by the end of 2008, after having issued $3.5 billion in debt to finance the spin-off.
Spin-offs and their parent companies typically outperform the overall market within their first year, according to several published studies. There are two factors that contribute to this: (1) corporate/capital structure improvements, and (2) baseless selling by uninterested shareholders. Most analysts agree that both Western Union and First Data Corp will benefit on a structural basis from the two companies being seperated; however, since Western Union is so well known (and even being accepted into the S&P 500) there will probably be no baseless initial sell-off that would create great buying opportunities. Despite this, Western Union appears to be a strong company with a great ability to generate cash, while FDC still has a higher breakup value than its market price. Many analysts suggest the company could trade anywhere between $22 and $27 based on an analysis of their peers.
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