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RiskMay 9, 2023

Florida Pension Sues Fidelity National Over Worldpay Deal

The fintech firm is accused of failing to disclose material information that led to a $17.6 billon write-down.

A Florida pension fund has filed a securities class action lawsuit against Fidelity National Information Services Inc. for allegedly failing to disclose material information related to its $43 billion acquisition of payments company Worldpay Inc.

The complaint, filed by the Palm Bay Police and Firefighters Pension Fund, alleges that the acquisition led to a goodwill impairment charge of $17.6 billion that caused the company’s stock to drop sharply.

The lawsuit centers on Jacksonville, Florida-based Fidelity National’s $43 billion acquisition of payments company Worldpay in 2019. With the acquisition, Worldpay became part of Fidelity National’s Merchant Solutions segment. The pension fund alleges that Fidelity National and its executives made false and misleading statements about the Worldpay acquisition by assuring investors it had “successfully completed the Worldpay integration” and touted the benefits for the company of the integration of Worldpay.

“Investors slowly learned that the company’s important Merchant Solutions segment was underperforming and that the company’s integration of Worldpay was not ‘successfully completed,’” the complaint alleges.

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According to the complaint, on August 4, 2022, Fidelity National announced that James Woodall, its chief financial officer, planned to step down three months later, an announcement that allegedly caused the stock to fall more than 7%. The complaint notes that “other management changes soon followed.” The lawsuit adds that on November 3, 2022, Fidelity National reported that its Merchant Solutions segment suffered a “margin contraction of 430 basis points,” which allegedly caused Fidelity National’s stock price to plunge more than 29%.

Finally, before the markets opened on February 13 of this year, Fidelity National announced it would spin off Worldpay and that it would result in a $17.6 billion write-down on the asset, which allegedly caused the stock to drop 12%.

“As a result of defendants’ wrongful acts and misleading statements, and the precipitous decline in the market value of the company’s securities, plaintiff and other class members have suffered significant losses and damages,” the complaint says.

The lawsuit alleges that Woodall, then-CEO Gary Norcross and President Stephanie Ferris knew that adverse facts about the company had “not been disclosed to and were being concealed from the public and that the positive representations being made were then materially false and misleading.”

Representatives from Fidelity National Information Services did not immediately respond to a request for comment.

Statistical Recession Indicators Look Ominous

ClearBridge Investments' 10 signals of an economic downturn are now blinking red.

By Larry Light

A welter of differing economic signals has left investors confused about whether a recession is coming or not. On the optimistic side: Earnings are not as bad as feared, wages continue to rise and unemployment remains very low, at 3.4%.

On the pessimistic side: an analysis by ClearBridge Investments, which weighs 12 factors to assess the state of the economy. It grades them with traffic light colors. As of April’s end, none were green, two were yellow and 10 were red. The month before had two greens and a yellow, with the rest red. In February 2022, 10 of them were green, one was yellow and one was red.

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“While we still do not believe a recession has yet started, we are less confident than we were just two months ago, given the dominoes falling,” the investment firm’s report said.

For one thing, the jobs situation is not as benign as it may appear from the small unemployment rate, in ClearBridge’s view. Take unemployment insurance claims. They “have been drifting higher in 2023,” especially in light of revision by the U.S. Bureau of Labor Statistics, which found that claims were higher than originally reported.

Inflation is hurting corporate bottom lines, thus opening the way for more layoffs, the firm concluded. First-time filers are up—not a good portent. Reason: They are a hidden threat to the unemployment stats. Many of the new filers had generous severance packages that only now are running out, thus the timing of their benefit requests, the report explained.

Job sentiment is another indicator that bubbles below the surface. ClearBridge pointed out that, in the Conference Board Consumer Confidence Index, the number of respondents who said jobs were easy to get has fallen from 56.7% slightly more than a year ago to 48.4% lately.

Another little-noticed weakness is that total freight moved by truck saw one of its worst declines on record in April, the study said. (Trucks handle almost two-thirds of the goods moved on land in the U.S.) The American Trucking Association Truck Tonnage Index was down 5% in March, as compared with 12 months prior. This was the first year-over-year decrease since August 2021.

Josh Jamner, an investment strategy analyst at ClearBridge, says the ocean-shipping problem has been resolved and U.S. inventories restocked, but demand has slackened. Hence, lighter truck shipments.

Other indicators, such as housing permits, retail sales and credit spreads (yields have widened between Treasurys and junk bonds), are in the red column. And of course, the yield curve has been inverted for some time, with short-term Treasury paper yielding more than longer-term bonds, a classic sign of an impending recession.