Global Payments acquisition rumors spark valuation debate! "The Big Short" Burry: The real opportunity lies in Fiserv (FISV.US) and PayPal (PYPL.US)

"The Big Short" Michael Burry believes that a potential acquisition of payment processor Fiserv (FISV.US) would value the company at between $100 and $120 per share. He also reiterated that PayPal (PYPL.US) is a "fat pitch"; earlier reports that private equity is interested in its competitor Global Payments (GPN.US) have put industry valuations in the spotlight. Opportunity in Fiserv's "penalty box" The $100 to $120 acquisition scenario Burry laid out implies 100% to 140% upside from Fiserv's current market price. He arrived at that range by applying the valuation assumptions from a potential Global Payments acquisition. In his latest Substack post, he said: "Compared with Global Payments, Fiserv is more profitable, only slightly more expensive as an acquisition target, and has better asset quality." He believes the stock's struggles partly reflect a loss of investor confidence. "Fiserv has been in the 'penalty box' because of prior management's overly optimistic growth targets and inadequately disclosed Argentine hyperinflation earnings," he said. "That trust gap is not easy to repair on Wall Street, even with new management." Burry remains fully invested and said new deal activity could bring forward potential returns. "All in all, I think this situation is an opportunity," he said. "Remember, insiders have been buying heavily at these low levels." The acquisition comparison assumes a new owner could change strategy, cut costs and redeploy cash flow. Burry said Fiserv currently trades at about 1.6 times his IV15 benchmark for ordinary shareholders. IV15 is the price at which he expects to earn a 15% annualized return over 15 years. Fiserv will report third-quarter results on Tuesday. Global Payments takeover rally questioned Global Payments shares jumped as much as 18% on Friday after reports that Clayton, Dubilier & Rice was teaming up with its largest shareholder GTCR to pursue a takeover. GTCR obtained its 15% stake in Global Payments through the Worldpay acquisition completed in January at an enterprise valuation of $24.25 billion. Global Payments also sold its issuer solutions business to Fidelity National Information Services Group, Inc. (FIS.US). However, Burry is skeptical of Global Payments' acquisition strategy and heavily adjusted earnings. "From a minority shareholder's perspective, I have always believed Global Payments has limited value as a serial acquirer destined to keep buying companies at poor returns," he said. Even assuming improved capital allocation, he put the entry price range for a controlling buyer seeking a 15% annualized return at $45 to $60, about 38% to 54% below current levels. At that market price, he estimates a controlling buyer could earn a 10% return. His valuation for FIS of $18 to $26 is about 33% to 53% below the previous close. Still, he sees it as a potential catalyst for competitors. "However, a Global Payments acquisition should validate the value of other legacy payment networks. It could even make them acquisition targets too," he said. Bullish on PayPal as a "fat pitch" Burry remains bullish on PayPal, but said its business is not easily compared directly with Global Payments. "It currently trades at about 0.80 times IV15, making it a 'fat pitch' in the low $50s," he said. He described his position size as between a small position and a normal position. His bullish stance predates the latest deal speculation. In July, he questioned Stripe and Advent's $60.50-per-share offer, arguing that a buyer gaining control of PayPal should pay more. "$60.50 is too low. I wouldn't sell, and I think this is just an initial bid," he said at the time. Stripe and Advent reportedly abandoned the acquisition in August. Outside payments, Burry added to call options on Sprouts Farmers Market (SFM.US) expiring in 2028 and call options on JD.com, Inc. Sponsored ADR Class A (JD.US) expiring in 2029. He also added to BYD Company Limited, describing the automaker as a medium-sized position and JD.com, Inc. Sponsored ADR Class A as a large position.