GICS Sector: Information Technology The Company June 9, 2017 Dow Jones Indus: 21,271.97 S&P 500: 2,431.77 NYSE: WU Russel 2000: 1,421.71 Index Component: S&P 500

AAF History Report Type Update Initially Probed March 30, 2009 Last Probed February 27, 2015 Trigger Increasing Value of WU.com Situation Hidden Asset/Misguided Bear Case

Selected Financial Summary ($MM) 2013 2014 2015 2016 Revenues: $5,542 $5,607 $5,484 $5,423 Capitalization and Trading Multiples ($MM) Adj. Net Income $798 $852 $838 $865 Margin (%) 14.4% 15.2% 15.3% 16.0% Share Price $19.01 2014 2015 2016 EBITDA $1,370 $1,412 $1,415 $1,368 Diluted Shares (MM) 483.4 EV/EBITDA 8.0x 8.0x 8.3x Margin (%) 24.7% 25.2% 25.8% 25.2% Market Cap $9,189 P/E 12.0x 11.4x 10.9x Capex 241 179 267 230 Debt $3,491 P/FCF 10.5x 11.4x 11.3x Capex (% of Revenues) 4.4% 3.2% 4.9% 4.2% Cash $(1,323) EV/Sales 2.0x 2.1x 2.1x Free Cash Flow $848 $867 $805 $812 Enterprise Value $11,357 Price/Book NA NA NA FCF Yield (%) 9.2% 9.4% 8.8% 8.8% Trading Statistics Net Debt/EBITDA 1.6x 1.4x 1.3x 1.4x Dividend Rate $0.70 Avg. Daily Volume (3mo) (MM) 4.3 Share Repurchases ($MM) $400 $495 $511 $502 Dividend Yield 3.68% Short % of Float 13.8% EPS $1.43 $1.59 $1.67 $1.75 Payout Ratio 41% Fiscal Year End: December High Low Overview 52-Week $22.70 $18.07 Western Union (“WU” or “the Company”) was 5-Year $22.56 $11.95 spun off from First Data Corp. (ticker: FDC) in Valuation September 2006. Once the spin-off dynamics largely passed, WU shares traded at ~$19 per share. Today, Intrinsic Value $33 Time Horizon 2020 WU still trades at ~$19, and there have been no Implied Upside 72% IRR 20% stock splits. While the S&P 500 increased by over Hidden Assets Yes 80% (excluding dividends) since WU’s spin, the only Description WU.com will account for 27% of WU’s EV in 2020, return WU shareholders have received has come up from 11% in 2016. from the Company’s dividend, which went from $0.04 annually in 2007 to $0.70 per year at present (3.7% Share Ownership yield). WU’s stock price underperformance is even more pronounced when considering that the Economic Voting Company has shrunk its fully diluted share count by Officers & Directors 1.1% 1.1% 37% over the past decade. Major Shareholders (3/30/17) Asset Analysis Focus has profiled Western Capital Research 14% 14% Union four times since its spin-off, at share prices Vanguard 11% 11% ranging from $12.00 (a well-timed initiation during the FMR 9% 9% depths of the financial crisis) to $19.50. We are providing another update on the Company as two recent developments suggest Western Union’s “lost Clients of Boyar Asset Management, Inc. own 31,302.50 shares of The decade” may be approaching its end. First, Western Western Union Company common stock. Union’s rapidly growing digital money transfer Analysts employed by Boyar’s Intrinsic Value Research LLC own shares of The business (westernunion.com, or WU.com), could Western Union Company common stock. single-handedly lift the Company’s EPS growth to 10%-13% by 2020. We estimate that WU.com, which

- 1 - The Western Union Company accounted for just 8% of revenues in 2016, will grow to 15% of revenues by 2020. With ~20% sustainable revenue growth, WU.com will contribute 300 bps to WU’s revenue growth in 2020. WU needs mid-single-digit revenue growth to experience margin expansion, which means that the remaining businesses (“RemainCo,” composed of Retail C2C, C2B and B2B) need to deliver just 1%-2% revenue growth, collectively. These businesses have delivered this level of growth for the past 2 years (in constant currency), but FX headwinds have made them appear like declining businesses. By 2020, there is a good chance that recent USD strength will abate. If FX becomes a neutral factor, we estimate WU could achieve ~5% revenue and ~10%-13% EPS growth by 2020. If FX shifts to a tailwind, 2020 EPS growth could exceed our projection.

Second, two recent takeovers have shed light on the intrinsic value we always thought was present in Western Union. The bidding war for MoneyGram, the #2 global retail money transfer provider—which saw its stock gain ~170%—ultimately valued the business at 8.3x EV/LTM EBITDA and 21x EV/LTM FCF. In addition, PayPal’s buyout of Xoom, the #2 digital money transfer operator, valued Xoom at 4.8x LTM revenues. It is important to note that Western Union is the #1 player in both retail and digital consumer-to-consumer (C2C) money transfer and has numerous competitive advantages over MoneyGram (including more than 2x MoneyGram’s market share and far higher margins) and Xoom (including almost 2x Xoom’s revenues and better revenue growth).

Looking out to the end of 2020, and valuing WU.com at 3.5x revenues (a discount to Xoom’s buyout multiple), the RemainCo businesses have an implied valuation of just 5x EV/EBITDA, a large discount to MoneyGram’s takeover multiple of 8.3x. In estimating WU’s intrinsic value at the end of 2020 we applied a 3.5x revenue multiple to WU.com and a 10x EV/EBITDA multiple to RemainCo (Retail C2C, C2B and B2B). RemainCo’s valuation equates to 15x EV/FCF, a substantial discount to MGI’s 21x EV/FCF takeover valuation. We derive a conservative intrinsic value estimate of ~$33 per share at the end of 2020, offering ~72% upside, or a 3.5-year IRR of 20% including the dividend (3.7% current yield).

WU is currently heavily shorted (short interest represents 14% of the float and 10 days to cover), largely due to the belief that digital money transfer providers are disintermediating WU’s high-margin Retail C2C business (~$4 billion in revenues, and WU’s largest business). In reality, digital money transfer is disintermediating the banking industry, which controls ~55% of the global cross-border money transfer market, and has made few inroads into WU’s international migrant customer base. Moreover, Western Union itself owns the world’s #1 digital money transfer provider, WU.com.

In our view, Western Union is a virtually impossible-to-replicate global asset. The Company operates in over 200 countries and benefits from an unmatched 91% brand awareness globally. We estimate that WU controls ~28% of the global retail/digital C2C money transfer market (the top 3 players command ~45% market share). In certain corridors which have less competition, WU’s market share approaches 50%-70%. Moreover, we estimate that WU commands 51% of the retail/digital C2C industry’s profits. WU’s rare winner-takes-almost-all position is a function of its unmatched brand strength, which allows the Company to price at a 15%-20% premium (on average) to the competition and generate industry-leading margins.

Western Union’s valuation did not improve after the Xoom and MoneyGram deals, despite the fact that the transactions highlight WU as significantly undervalued. In our view, the market is incorrectly concerned about digital disintermediation and sees WU as too big to be acquired. We see little evidence of disintermediation, and we believe that WU’s ~$11.4 billion EV could be easily digested by both strategic and financial buyers. If an offer were made for WU, we would not be surprised to see a bidding war break out, as was the case with MoneyGram.

Business Description Western Union operates three different global money transfer businesses: C2C, C2B and B2B.

Consumer-to-Consumer (C2C, 79% of 2016 revenues, 92% of op. income, 23% operating margin) In its C2C business, Western Union facilitates individual money transfers from one consumer to another. Western Union operates an asset-light transaction processing business which partners with local agents who own the brick-and-mortar locations where consumers go to initiate a transaction. WU’s ~500,000 retail agents locations around the world include post offices, banks, financial services institutions, major retail stores, drug stores, convenience stores and foreign exchange agents. The typical customers of WU’s retail C2C business are international migrants (people who leave their home country for better economic opportunities in another country). The World Bank expects the international migrant population to soon surpass 250 million (~3% of the world’s

- 2 - The Western Union Company population), reaching an all-time high, as people search for economic opportunity outside of their birth country.1 It is important to note that WU’s retail C2C business is primarily a cash-to-cash money transfer business. WU’s rapidly growing digital money transfer business (WU.com)—a non-cash business at the send end, with payouts sometimes made in cash at the receive end—is included in the C2C segment. In 2016 WU.com made up 8% of the C2C segment’s revenues. C2C revenues are composed of transaction fees (73%), foreign exchange fees (26%) and other revenues (1%). The average principal amount sent in the C2C business is ~$300 per transaction. WU is the #1 global provider in both its retail and digital C2C money transfer businesses. In 2016, the Company transferred ~$80 billion annually in C2C, with $72.5 billion (91%) being high-margin cross-border transfers and $7.5 billion (9%) being lower-margin intra-country transfers.

Consumer-to-Business (C2B, 12% of 2016 revenues, 6% of op. income, 10% operating margin) C2B is essentially a bill payment service whereby WU facilitates consumer payments to such businesses as utilities, auto finance companies, mortgage servicers and government agencies. WU’s business customers benefit from real-time or near real-time posting of customer payments. The majority of this segment’s revenues are generated in the U.S., where WU’s business is largely electronic (customer payments are initiated through the Internet or by phone and are largely funded by credit cards, debit cards or bank accounts). WU’s second-largest business is a walk-in, cash-based bill payment business in Argentina, called Pago Fácil. WU has wide coverage in Argentina, with 98% of Argentine households making at least one transaction through Pago Fácil every year. WU operates similar, but far smaller, businesses in Peru and Panama. The C2B segment transfers ~$87 billion in principal annually. C2B revenues are composed of transaction fees (96%), which are charged at a significantly lower percentage of principal sent than is the case in its C2C business (due to its being largely a domestic money transfer business as opposed to a cross-border one), and foreign exchange fees (4%).

Business Solutions (B2B, 7% of 2016 revenues, 2% of op. income, 5% operating margin) WU established its B2B segment through its 2011 acquisition of Global Business Payments for $976 million. This business facilitates cross-border payment and foreign exchange (FX) solutions for small and medium-sized businesses. The Company has ~100,000 clients in 31 countries and transfers ~$80 billion in principal annually. The vast majority of B2B revenues are FX fees (89%) resulting from the difference between the exchange rate set by WU to the customer and the rate available in the wholesale foreign exchange market, with a smaller amount (11%) coming from transaction and other fees.

Western Union Is a Virtually Impossible-to-Replicate Global Asset WU is the world’s largest money transfer provider, operating in over 200 countries through ~500,000 C2C retail agent locations. WU transfers money across 16,000 corridors (a corridor is a country-to-country pairing, such as from the U.S. to Mexico) and completes ~2.5 million transactions each day between its three businesses (C2C, C2B and B2B). Western Union benefits from an unmatched 91% brand awareness globally. In consumers’ minds, the Western Union brand stands for omnipresence (unparalleled global coverage, both physically and digitally), trust (reliability and risk management) and efficiency (the ability to move money to the other side of the world in minutes). WU’s business is a complex one, requiring 204 regulatory licenses around the world and necessitating the Company to spend 3.5%-4% of revenues on compliance annually (~$200 million per year; more than 20% of its workforce is dedicated to compliance). In recent years, stricter compliance requirements aimed at improving the industry’s anti-money laundering, anti-terrorism and anti-fraud initiatives have raised barriers to entry and contributed to a couple of small competitors’ exiting the business. We believe WU has a strong competitive advantage with respect to compliance. In the past 5 years, as WU significantly increased its compliance spend, the dollar value of reported fraud in WU’s C2C transactions compared with the total value of C2C transactions has declined by more than 60%. WU spends ~4% of revenues on marketing annually to maintain its unmatched brand awareness. Moreover, the Company engages in certain acts of goodwill which differentiate it in the marketplace. For example, after the 2015 earthquake in Nepal, WU temporarily waived its fees on money transfers into the country and experienced an immediate doubling of transactions into Nepal.

In 2016, Western Union had 12.6% market share of the $575 billion (principal) C2C cross-border money transfer market, a business which accounted for 92% of its operating income. However, WU’s market share is far greater when looking more closely at its true end market. About 55% of global are sent through the

1 The World Bank, “Migration and Remittances Factbook 2016,” http://www.worldbank.org/en/research/brief/migration-and- remittances.

- 3 - The Western Union Company banking system, leaving ~45% (or ~$259 billion in annual principal) sent through retail/digital C2C channels. Western Union has ~28% global market share of the retail/digital cross-border C2C money transfer market, and in certain corridors which have less competition, WU’s market share can approach 50%-70%. We estimate that MoneyGram (the #2 C2C competitor) has ~11% global market share on this basis, and Euronet (#3; ticker: EEFT) has another ~6%. In short, the top 3 retail/digital C2C money transfer providers control ~45% of the global market. There are no other global players; the remainder of the industry consists of regional competitors (such as UAE Exchange in the United Arab Emirates, which is both a competitor and a WU/MGI agent; the company has plans to IPO on the London Stock Exchange in the near future) and single-corridor specialists. WU’s pricing in retail C2C is, on average, 15%-20% greater than that of its competition, underscoring its competitive advantages and the strength of its brand. As the following table illustrates, WU generates almost 2x the C2C money transfer revenue of MoneyGram and Euronet combined and, due to its industry-leading margins, earns 5x their combined EBIT.

Top 3 C2C Money Transfer Providers, 2016 Data ($MM)

C2C Retail / Digital C2C EBIT C2C Share C2C Revenues C2C EBIT Share Margin

Western Union (WU) 13% 28% $4,305 $1,009 23.4%

MoneyGram (MGI) 5% 11% $1,456 $96 6.6%

Euronet (EEFT) 3% 6% $802 $102 12.7%

Total Top 3 21% 45% $6,563 $1,206

WU/(MGI + EEFT) 1.9x 5.1x

Source: Western Union, MoneyGram, and Euronet 2016 10-Ks

We estimate that WU’s C2C profits account for 51% of the retail/digital C2C industry’s profits. Our estimate is based on applying the average of MGI’s (6.6%) and EEFT’s EBIT margin (12.7%), or 9.6%, to the remaining 55% of the market not held by the top 3 players. We believe this to be an optimistic margin, as the rest of the industry has far less scale and brand awareness, and must compete on price. In short, 51% likely understates WU’s profit share. Western Union’s dominance of its industry’s profitability is almost as strong as that of Apple, Inc. (ticker: AAPL), in the consumer electronics industry. Apple accounted for 14.5% of global smartphone units in 2016 but, due to its premium pricing and industry-leading margins, captured 79% of the industry’s profits.2 In our view, the primary contributor to such a winner-takes-almost-all phenomenon in business is unmatched brand strength which allows for premium pricing. We view Western Union is a virtually impossible-to-replicate global asset.

WU.com Is Western Union’s Crown Jewel and a Valuable Hidden Asset WU.com allows customers to send money to a recipient’s bank account (almost 3 billion bank accounts worldwide can receive a WU.com transfers) or to one of WU’s ~500,000 retail agent locations around the world. The sender can fund the payment through a credit card, debit card, or bank account or through ApplePay. WU.com’s fees are different depending on the send/receive combination. It is more expensive to send money to a retail location than to a bank account, for example, as WU must pay the agent a commission. In addition, funding the payment with a credit card is more expensive than funding it with a bank account. A typical WU.com customer might be a 25-year-old with a job in London, sending money to family in rural India. WU.com customers generally send money to support family members, as gifts, and/or for emergencies.

2 Husain Sumra, “Apple Captured 79% of Global Smartphone Profits in 2016,” MacRumors, March 7, 2017, https://www.macrumors.com/2017/03/07/apple-global-smartphone-profit-2016-79/.

- 4 - The Western Union Company

Top 5 Digital Money Transfer Providers ($MM)

2015 Revenues % of Top 5 WU.com $300 44% Xoom* $177 26% MoneyGram Digital** $150 22% $39 6% TransferWise*** $14 2% Total Top 5 $680 100%

*12 months ended September 30, 2015 ** MoneyGram’s digital revenues include .com, mobile solutions, account deposit and kiosk-based services. We view the first two as true digital businesses and the latter two as part of the retail C2C business. As such, $150 million overstates MGI’s digital revenues, in our view. ***12 months ended March 30, 2015 Source: Western Union 2016 Investor Day presentation and MoneyGram 2015 10-K

The vast majority of WU.com’s transaction volume is incremental business to Western Union, and not a result of cannibalization. Over 80% of WU.com customers are new to Western Union, as measured by the fact that they did not make a retail C2C transaction through WU in the past 2 years. In addition, WU.com is appealing to a different demographic. The digital customer base is more affluent, more banked and more tech-savvy than WU’s retail C2C customers. Millennials make up over 46% of the digital customer base and represent 58% of WU.com transactions initiated on a mobile phone. WU’s mobile app has been downloaded by more than 3 million people worldwide. Mobile customers are the most valuable, as they make the most frequent transfers, likely due to the ease and convenience of using a mobile app.

WU.com currently offers digital money transfer capabilities in 40 send countries to the 200 receive countries where Western Union’s retail C2C business has a presence. Management’s long-term goal is for the digital business to cover 200 send and 200 receive countries, matching the coverage of the retail C2C business. WU.com is on track to exceed $400 million in revenues this year and accounts for ~10% of the C2C segment’s revenues (up from 8% in 2016). Moreover, since 15 of WU.com’s 40 send countries went live in just the past 2 years, WU.com’s current revenue run rate does not reflect full penetration of its existing geographies. With another 160 send countries left to go live, combined with 91% global awareness of the Western Union brand, it is not hard to see WU.com growing into a multiple of its current revenue run rate in several years. WU.com experienced 28% constant currency revenue growth in 1Q 2017, an acceleration from 24% in full year 2016. If WU.com can sustain its current rate of growth, its revenues will double roughly every 3 years.

In our view, self-cannibalization at WU is not a valid concern, as retail and digital are two very different channels. Retail customers are largely un- or underbanked, non-tech-savvy and low-income, whereas digital customers are largely banked, tech-savvy and more affluent. We believe the most likely scenario over the next 5 years is that WU’s retail C2C business remains flattish at ~$4 billion in revenues or grows modestly (it is difficult to grow a business that has almost 30% market share) while WU.com grows toward a $1 billion annual revenue business.

WU.com Revenue Growth ($MM)

1Q16 2Q16 3Q16 4Q16 2016 1Q17 C2C Revenues $1,017 $1,096 $1,099 $1,093 $4,305 $1,015 WU.com % of C2C Revenues 7% 8% 8% 9% 8% 9% WU.com Revenues $71 $88 $88 $98 $345 $91 WU.com Rev. Growth (Constant FX) 18% 20% 28% 30% 24% 28%

- 5 - The Western Union Company

WU.com also markets its platform as a white-label product, called WU Connect, that other online businesses can plug into to offer digital money transfers to their customers. So far, Facebook, Viber and WeChat have partnered with WU Connect, giving their users the option to send money without leaving their respective websites/apps. This relatively new business for WU has not generated a meaningful amount of transaction volume, and WU management believes that the social media/messaging channel is not one through which many people will ultimately want to send money. Nonetheless, we see WU Connect as a forward-looking innovation, protecting WU.com’s moat, and highlighting Western Union’s first-to-market leadership and that WU will be a part of any future disruptive technologies.

MoneyGram’s Recent Takeover Highlights the Value of a Global Retail C2C Money Transfer Business In our view, the recent bidding war for MoneyGram International, Inc. (MGI shares traded at ~$6.50 in October 2016, Ant Financial offered to buy the company for $13.25 in January 2017, Euronet bid $15.20 in March, and Ant Financial raised its bid to $18.00 in April), underscores the attractiveness of a global money transfer business. As the world’s #2 retail C2C money transfer provider, with ~5% global market share (~11% of retail/digital), MoneyGram holds a solid position as a “value” option for consumers and consistently prices underneath Western Union’s pricing umbrella. Despite its stable market position and decent brand, MoneyGram is not in the same league as Western Union with respect to business quality. WU’s competitive advantages over MGI include having (1) ~2.5x MGI’s market share and more than triple its revenues, (2) a +1,000 bp advantage with respect to EBITDA and FCF margin, (3) a far superior brand, and (4) no exposure to Wal-Mart versus 18% exposure for MGI.

Western Union vs. MoneyGram Comparison ($MM)

Western Union MoneyGram WU/MGI C2C Global Market Share 12.6% 5.0% 2.5x 2016 Total Revenues $5,423 $1,630 3.3x Retail Agent Locations 500,000 350,000 1.4x Wal-Mart % of Revs. 0% 18% --- 2016 EBITDA Margin 25.2% 15.0% +1,020 bps 2016 FCF/EBITDA 64% 39% 1.6x 2016 FCF/Revenues 16.2% 5.9% +1,030 bps

Source: Western Union and MoneyGram 2016 10-Ks

In its 2016 10-K, MoneyGram disclosed that it generated $194 million in digital revenues (representing 12.5% of the revenues of its Global Funds Transfer segment). However, MGI’s digital revenues include moneygram.com, mobile solutions, account deposit and kiosk-based services. We view that former two businesses as true digital businesses, and the latter two as extensions of the retail C2C business. MGI does not disclose the revenue split among these businesses, however we suspect that the kiosk-based business represents a substantial portion of digital revenues since MGI rolled out this offering long before its digital and mobile offerings. We believe MGI’s revenues from true digital businesses are a small fraction of WU.com’s $345 million in revenues in 2016.

MoneyGram’s takeover valued it at 8.3x EV/LTM EBITDA, in line with WU’s current public market valuation (8.3x EV/LTM EBITDA). However, given MGI’s comparatively poor FCF conversion (39% FCF/EBITDA vs. 64% for WU, and 5.9% FCF/revenues vs. 16.2% for WU), we believe that EV/FCF is a better metric for valuing both companies. MGI’s takeover value equates to 21x EV/FCF, while WU currently trades at 15x EV/FCF. Applying MGI’s takeover multiple (21x) to WU’s 2016 FCF results in a private-market value for WU of almost $34.00 per share, or 78% above the current share price, and implies an EV/EBITDA multiple of 13.5x. While such upside to private market value for WU may appear aggressive, we would note that MGI is being taken over at an ~170% premium to its share price of a few months ago. In addition, we do not see 13.5x EBITDA as an excessive takeover valuation for a dominant, hard-to-replicate global asset like WU, which controls over 50% its industry’s profitability.

- 6 - The Western Union Company

MoneyGram International Takeover Valuation ($MM)

MGI Takeover Price Per Share $18.00 FD Shares 66.1 Equity Value $1,190

Debt $915 Pension $88 Cash ($157) Net Debt $846

EV $2,035 2016 Adj. EBITDA (post SBC) $246 2016 Adj. FCF $97 FCF/EBITDA 39%

EV/2016 Adj. EBITDA 8.3x EV/2016 Adj. FCF 21.0x

Xoom’s Acquisition by PayPal Highlights the Value of a Digital Money Transfer Business In November 2015, PayPal Holdings, Inc. (for which AAF provided an update in our May 2017 issue), completed the acquisition of Xoom Corporation, the second-largest digital money transfer provider. Xoom was founded in 2001 in San Francisco and was backed by VC firms that included . The company went public in February 2013 at $16.00 per share and was acquired 2½ years later for $25.00 per share, or an equity value of just under $1 billion. At the time of the acquisition, Xoom was entirely a U.S. send business (it offered digital money transfer service in the U.S. only) with just 37 receive countries. Xoom’s CEO, John Kunze, stated that the motivating factor behind the deal was PayPal’s global presence, as the acquirer’s know-how and relationships with banks around the world would help Xoom expand more rapidly. Kunze stated, “You can imagine us getting a global footprint much faster and with much less execution risk.”3 According to Xoom’s website, its service has expanded to 63 receive countries under PayPal.

Xoom achieved an impressive valuation in its takeover: 4.8x EV/LTM revenues and 65x EV/LTM adjusted EBITDA. In using the Xoom deal as a precedent transaction for WU.com’s valuation, we would note a few differences: (1) in 2015, WU.com’s revenues were almost 70% greater than Xoom’s (which should translate into higher margins for WU.com, as scale is crucial for a money transfer business), (2) WU.com was growing faster than Xoom around the time of Xoom’s takeover (in the 9 months ending September 2015, WU.com’s revenues grew by 20%, while Xoom’s grew by 15%), (3) WU.com already benefits from Western Union’s global presence, while Xoom had to sell to PayPal to facilitate its global expansion, and (4) WU.com is presently offered in 40 send countries and offers 200 receive countries on its way to 200/200. Xoom is presently offered in 1 send country (the United States) and offers 63 receive countries. We do not believe that Xoom will ultimately achieve WU.com’s targeted level of global coverage. Xoom Corporation Takeover Valuation ($MM)

Xoom Takeover Price Per Share $25.00 FD Shares, 3Q 2015 39.5 Equity Value $988

Cash $65 Short-Term Investments $88 Debt ($12) Net Cash $140

EV $847 LTM Revenues, 3Q 2015 $177 LTM Adj. EBITDA, 3Q 2015 $12.9 Adj. EBITDA Margin 7.3%

EV/LTM Revenues 4.8x EV/LTM Adj. EBITDA 65.7x

3 Nick Wingfield, “PayPal Acquires Xoom for Stake in Digital Money Transfers,” The New York Times, July 1, 2015, https://www.nytimes.com/2015/07/02/business/paypal-acquires-xoom-for-stake-in-digital-money-transfers.html.

- 7 - The Western Union Company

For conservatism, we have valued WU.com at 3.5x revenues, a discount to Xoom’s takeover multiple. Applying 3.5x to WU.com’s LTM revenues of $365 million yields an intrinsic value of $1.3 billion today, or 11% of WU’s current EV. Moreover, with an outlook for +20% revenue growth over the long term, WU.com’s intrinsic value will command a rising percentage of WU’s EV over time, driving the implied valuation of WU’s other businesses (Retail C2C, C2B and B2B) lower over time.

Addressing the Bear Case Western Union remains heavily shorted (short interest stands at ~14% of the float, and 10 days to cover) even after the bidding war for #2 competitor MoneyGram drove MGI shares up by ~170% in a matter of months. The bear case on WU states that digital money transfer providers will disintermediate WU’s high-margin, ~$4 billion-in-revenue retail C2C business. The bear case further states that the world is moving toward a cashless society in which more and more people will have smartphones and fewer people will need to walk into a retail money transfer location and pay WU’s high fees (WU’s C2C transaction + FX fees in 2016 averaged ~5.5% of principal) to transfer money overseas. As a result, WU will see a decline in transaction volume or pricing or both. Short sellers see the digital money transfer industry as a collective Amazon.com and Western Union as a slowly dying brick-and-mortar retailer.

Many fintech startups have gained VC funding to go after the large opportunity in the $575 billion (in cross- border principal) global market. Some of these startups have grown rapidly, but we believe they have largely gained share from the banking industry (which controls ~55% of the global money transfer market) and have gained very little share from WU. Customers of digital money transfer providers are wealthier, more banked and more tech-savvy than WU’s international migrant customer base in retail C2C. We believe confusion, as well as inaccurate media coverage, has led some investors to erroneously conclude that digital money transfer is taking market share from WU.

Xoom Corporation (the #2 digital money transfer provider) listed Western Union and MoneyGram as its main competitors in its most recent 10-K. However, Xoom, in our view, is referring to WU.com and MoneyGram’s digital business, as opposed to WU and MGI’s retail C2C businesses. Later in the document Xoom stated that “with the widespread consumer adoption of digital channels and a steady proportion of the banked population [emphasis added] among the foreign-born community in the United States, we believe we are disrupting the traditional forms of money transfer and cross-border bill payment with our services which provide a convenient, fast and cost-effective way to send money.”4 Western Union’s typical customer is un- or underbanked.

Similarly, TransferWise, a UK-based startup, made a splash in 2014 when it attracted investment capital from Sir Richard Branson, founder of Virgin Group and a serial disrupter. TransferWise offers low fees because it doesn’t actually transfer money: it acts like something of a matchmaker for people looking to send cash overseas. When a customer in the U.S. wants to transfer funds to, say, India, TransferWise receives the money in the United States in USD and looks for a customer in India who is looking to transfer rupees to the U.S. Since no bank ever gets involved and money doesn’t actually cross national borders, TransferWise is able to charge very low fees (just 1% transaction fees for U.S. customers, as well as better deals on FX). TransferWise has grown rapidly and currently has a revenue run rate of ~$120 million annually.5 However, TransferWise is primarily gaining share from banks. In order to use TransferWise, both the sender and receiver need a bank account (a rare occurrence in a typical Western Union retail C2C transfer). In addition, TransferWise takes one business day to pay out to the recipient, which is quicker than a bank transfer but much slower than WU’s “money in minutes” global standard. We see little overlap between TransferWise and WU’s end markets; instead, we see misguided opinions about the former disrupting the latter. Exhibit A is a Yahoo! Finance article on TransferWise that begins with the following claim: “Look out, Western Union. A new startup is making it easier—and a lot cheaper—for Americans to send and receive money overseas and it’s attracted funding from big name investors like venture capitalist and Virgin Group founder Sir Richard Branson.”6 However, in a recent video interview with Yahoo! Finance, TransferWise’s CEO, Taavet Hinrikus, set the record straight on his competition: “But really if we think about

4 Xoom Corporation, Form 10-K for the fiscal year ended December 31, 2014. 5 Oscar Williams-Grut, “TransferWise Says It Is on Track to Do £100 Million in Revenue This Year and Is Profitable,” Business Insider, May 17, 2017, http://www.businessinsider.com/transferwise-revenue-profit-2017-5. 6 Mandi Woodruff, “Richard Branson, Peter Thiel Take Aim at Western Union,” Yahoo! Finance, April 15, 2015, https://finance.yahoo.com/news/look-out-western-union-%E2%80%94-a-new-startup-is-making-money-transfers-way- cheaper-202315065.html?soc_src=mediacontentstory&soc_trk=twtw.

- 8 - The Western Union Company competition, competition for us is banks. It’s the Citibanks of the world; it’s the HSBCs of the world. When we ask our customers ‘how did you do international payments before you learned about TransferWise?’ it’s about the banks, and then a little bit about Western Union.” (This quote accurately reflects what Hinrikus said in the video interview, whereas the article misquotes him as having said, “If you ask our customers how they used to send money to another country, it was their bank or Western Union (WU).”)7

We see two large holes in the bear case. First, it erroneously assumes that digital money transfer providers are targeting WU’s un- or underbanked, non–tech-savvy and low-income international migrant customer base (which is like saying that American Express is targeting Wal-Mart’s customers with its charge cards). In our view, the evidence is clear: digital money transfer growth is coming largely at the expense of the banking industry, which charges the highest fees for money transfer. A World Bank study of 365 corridors found the average cross- border money transfer fee (transaction + FX) to be 10.99% for banks, compared to 6.23% for money transfer operators (MTO), in 2Q 2017 (see the following chart). Mobile operators, such as WU.com, charged the lowest rates, at 3.29%. The global average fee (among banks, MTOs, post offices, and mobile operators) was 7.32%.8 Based on data that Western Union disclosed in its 2016 10-K, we estimate that the Company’s overall (transaction + FX) fee was ~5.5% in 2016. We view WU’s fees as fair, especially in light of the Company’s promise to deliver “money in minutes” across the globe. (Banks typically take a couple of business days to transfer money.) Second, the bear case ignores the fact that Western Union has built the world’s largest and widest-reaching digital money transfer business (WU.com), which has almost 2x the revenues of the next largest competitor. WU.com is the biggest disrupter of bank-based money transfer, and we see little evidence that WU.com is cannibalizing WU’s retail C2C business (which is primarily a cash-to-cash business). Last, industry pricing has been stable for the past couple of years.

Average Money Transfer Fee by Industry, Q2 2017

Note: MTO = Money Transfer Operator. The above data covers 48 send countries and 105 receive countries, for a total of 365 corridors. Source: World Bank

7 Daniel Roberts, “TransferWise Enters the U.S.-to-Mexico Payments Market,” Yahoo! Finance, April 19, 2016, https://finance.yahoo.com/news/transferwise-taking-on-banks-and-western-union-for-international-payments- 153607560.html. 8 The World Bank, “Remittance Prices Worldwide,” Issue 22, June 2017, https://remittanceprices.worldbank.org/sites/default/files/rpw_report_june_2017.pdf.

- 9 - The Western Union Company

Average Money Transfer Fee By Industry, Past 9 Years

Note: MTO = Money Transfer Operator. The above data covers 48 send countries and 105 receive countries, for a total of 365 corridors. Source: World Bank

The Approaching End of WU’s Intercompany Working Capital Program Is Not a Major Concern Through a creative (and legal) intercompany working capital program, WU has been able to access all of its global FCF and has been returning nearly all of its global FCF to shareholders through dividends and share buybacks in recent years. However, this process is not indefinite, and WU’s ability to return ~100% of FCF to shareholders may be impacted in the medium term.

Since all of WU’s debt is in the United States, WU’s U.S. FCF is nil after interest and corporate expenses. From its ~$1 billion in annual CFFO, the Company repatriates ~$250 million annually, largely from high-tax jurisdictions so that repatriation taxes are minimized. To access the rest of its CFFO (~$750 million annually) without paying repatriation taxes, WU makes use of intercompany working capital programs. Rising intercompany accounts payables balances essentially allow WU to create an untaxed source of cash as long as the balance keeps growing. For example, if a B2B client wants to send $1 million from the United States to Argentina, instead of transferring the money immediately, WU receives the $1 million in the U.S. and has its Argentine subsidiary pay the equivalent amount in Argentine pesos (less fees) to the recipient. An intercompany payable of ~$1 million is then created between the U.S. and Argentine subsidiaries, which is paid off ~30 days later. However, within those 30 days, new transfers from the U.S. to Argentina are handled in the same manner, and the total payables balance rises. WU applies such programs globally. As long as the overall payables balance (the amount the U.S. subsidiary owes the various foreign subsidiaries) increases, an untaxed source of cash is created in the U.S., equal to the dollar-amount growth in the intercompany payable each year. This is no different than a company stretching out payables to its suppliers and creating a source of cash: as long as the payables balance keeps growing, the source of cash continues.

WU began this program in its C2C business. Recently, when the C2C intercompany payables balance reached a peak and stopped growing, WU extended the program to its B2B business, giving the program a longer life. But at an investment conference in late 2016, CFO Raj Agrawal stated, “We have another 2-3 years on the intercompany working capital programs.” By the end of 2019, we believe that WU will not be able to continue growing its intercompany payables balance. The Company discloses data about its intercompany working capital program annually in the “Parent Company Only” financial statements at the back of its 10-Ks. While other small items are captured in the following line items as well, for the most part they reflect the effect of the program.

- 10 - The Western Union Company

“Payable to subsidiaries, net” largely captures the overall intercompany payables balance, which grew from $99 million at the end of 2011 to ~$3 billion at the end of 2016. “Advances from/(to), net” mostly captures the change in that payables balance. As the following table shows, WU significantly ramped up the program in 2014-2016, creating a cumulative (untaxed) source of cash of ~$2.6 billion in the U.S.

WU Intercompany Working Capital Program ($MM)

2011 2012 2013 2014 2015 2016 Payable to Subsidiaries, Net $100 $774 $413 $1,181 $1,973 $3,011 Advances from/(to) Subsidiaries, Net ($181) $679 ($362) $768 $796 $1,024 CFFO $1,175 $1,185 $1,089 $1,046 $1,071 $1,042 Advances/CFFO (15%) 57% (33%) 73% 74% 98% Source: Western Union 10-Ks, 2011-2016

Many global companies utilize intercompany working capital programs, but since WU is a remittance business, its program has a much larger impact, as it is able to create intercompany payables with principal balances while other businesses can only utilize revenues. Since the principal that WU transfers around the world is a multiple of the revenues it generates in transaction and FX fees, the Company benefits from a multiplier effect on its intercompany working capital program compared to non-remittance businesses.

The approaching peak of WU’s overall intercompany payables balance (likely to be reached by the end of 2019) is not the end of the world for WU. WU has several options to compensate for the elimination of the untaxed FCF created by this program: (1) The Company could repatriate more foreign FCF to the U.S., but this would result in a higher tax rate and less after-tax FCF available in the U.S. than achieved through its working capital program. (2) The Company could close on an acquisition of a remittance business with substantial U.S. outbound volume, allowing it to extend the working capital program to the acquired company and continue growing the overall payables balance (for a finite period). The 2011 acquisition of Travelex Global Business Payments got WU into the B2B business and allowed it to extend the intercompany working capital program to B2B once it had reached its peak in C2C. (3) WU could also take on increasing debt and continue returning large amounts of capital to shareholders. Management has stated that it would reevaluate the Company’s investment-grade credit rating in the event the working capital program came to an end. WU is underleveraged, with just 2.0x adjusted net debt/EBITDA. If management were to conclude that a below-investment-grade credit rating would not competitively disadvantage the Company, we believe WU could easily support up to 3.5x leverage, giving it an incremental ~$2 billion in debt capacity, or ~22% of its market cap, for share repurchases. With WU buying back ~$500 million annually in recent years, $2 billion in incremental debt capacity would allow it to continue its current pace of share repurchase for another 4 years. (4) President Trump’s promised corporate tax reform plan may allow U.S. companies to repatriate foreign FCF at favorable tax rates going forward.

In a worst-case scenario, we believe WU’s dividend would not be impacted, but the Company would have less FCF available for share repurchases than it does today (~$500 million annually). We do not expect that this would impact WU’s valuation, as most U.S.-based multinationals do not access all of their global FCF (Apple and Oracle, for example, compensate for their rising overseas cash balances by taking on debt in the U.S., in line with overseas FCF, to fund share repurchases). We have not observed much of a valuation discount in the public market for U.S.-based multinationals with large amounts of cash trapped overseas versus domestic companies that have access to all of their FCF. As a result, we do not expect WU’s valuation to be impacted if it can no longer derive FCF benefits from its intercompany working capital program. Over the medium term, everything should be business as usual, as WU has $1.5 billion (16% of its current market cap) remaining on its share repurchase authorization, and management has stated that it would complete the authorization over the next 3 years (~$500 million per year).

We See Light at the End of the Tunnel for WU’s “Lost Decade” (10 Years of a Flat Stock Price) The Business Has Stabilized Over the past 5 years (comparing 2011 to 2016), WU’s revenues is flattish (mostly due to significant USD strength in recent years), net income is down by 26% (negatively impacted by FX, rising compliance costs, C2C price reductions in 2012/2013, and recent weakness in oil-producing countries), and EPS is down ~5% (adjusted

- 11 - The Western Union Company

EPS of $1.75 in 2016 vs. $1.84 in 2011), bolstered by a 22% share shrink (largely funded by WU’s intercompany working capital program). Management’s outlook for 2017 calls for low-single-digit constant currency revenue growth (but flat to down low single digits after FX headwinds) and flattish EPS (midpoint guidance of $1.69 on a GAAP basis, and $1.78 in constant currency). Importantly, industry pricing has been stable for the past 3 years as rising compliance costs have squeezed margins (at smaller-scale competitors more so than at WU) and have put a floor under pricing, which we expect to continue.

By 2020, WU Should Deliver 10%-13% EPS Growth, Driven by WU.com WU.com’s rapid growth, combined with its increasing share of WU’s revenues, is having an ever-growing impact on WU’s revenue growth. We have conservatively assumed 20% revenue growth for WU.com going forward. By 2020, WU.com’s revenues will account for ~15% of WU’s overall revenues (up from 8% in 2016). With 20% revenue growth, WU.com alone will contribute 300 bps to WU’s overall revenue growth exiting 2020. This is a substantial positive for a business that has experienced flattish revenues for the past 5 years. More important, CFO Raj Agrawal recently stated that WU needs mid-single-digit top-line growth to experience margin expansion. If WU’s remaining businesses, or “RemainCo” (Retail C2C, C2B and B2B), can collectively grow revenues by just 1%-2% annually, WU would experience operating leverage and therefore accelerating EPS growth. This scenario should not be difficult to attain; in fact, FX is masking the fact that RemainCo is already delivering 1%-2% revenue growth in constant currency. RemainCo delivered 1.1% and 2.8% constant currency revenue growth in 2016 and 2015, respectively. With the potential for ~5% revenue growth in 2020 and beyond (driven by WU.com), WU could sustain 10%-13% EPS growth, depending on the amount of share buybacks it is able to engage in after its intercompany working capital program peaks in 2019. Under this scenario, WU should trade at a substantially higher valuation than its current 8.3x EV/EBITDA, which reflects its short-term outlook for flattish EPS growth. All it would take for our 2020 growth scenario to become a reality is for FX to swing from a headwind to a neutral. If FX swings to a tailwind, WU could deliver 13%-20% EPS growth in 2020. In addition to being fundamentally undervalued, WU is, in our view, a low-risk way to profit from USD weakness.

Recent Developments Over the past 2 years, Western Union has endured a string of macro headwinds. Unprecedented USD strength in 2015 and 2016 not only haircut WU’s revenue and EPS growth but also created the appearance that WU is a declining business. C2C principal transferred declined in both 2015 and 2016 (see the following table). It is important to bear in mind that principal transferred is measured in USD and that the apparent weakness reflects lower values as measured in USD, as opposed to market share losses or disintermediation by digital players. More recently (3Q 2016 to 1Q 2017), WU was further impacted by the delayed effects of lower crude oil prices. Sharply reduced infrastructure spending in Saudi Arabia and the UAE resulted in a decline in the largely Indian migrant workforce in those countries and thus lowered remittances by that population to family members back home. In addition, India’s demonetization in late 2016 (~85% of the country’s banknotes were demonetized in an attempt to curb corruption and black market transactions) further pressured remittances into that country. All told, WU’s Middle East, Africa, and South Asia region (“MEASA,” which accounted for 17% of C2C revenues) exhibited a 13% revenue decline in 1Q 2017 (down 10% in constant currency). However, when removing this geography as well as WU.com and its 28% constant currency revenue growth (accounting for 9% of revenues), WU’s remaining retail C2C business (accounting for 74% of retail C2C revenues) exhibited 1.2% constant currency revenue growth in 1Q 2017. In our view, aside from transitory macro headwinds, WU’s retail C2C business is healthy and is exhibiting no signs of disintermediation.

Western Union C2C Principal Transferred ($B)

2012 2013 2014 2015 2016 C2C Principal Transferred $79.3 $82.0 $85.4 $81.6 $80.0 % Change (2.1%) 3.4% 4.1% (4.4%) (2.0%) Cross-Border Principal $71.3 $73.9 $77.2 $73.6 $72.5 % Change (2.3%) 3.6% 4.5% (4.7%) (1.5%) Cross-Border/Total Principal 89.9% 90.1% 90.4% 90.2% 90.6% Source: Western Union 10-Ks, 2012-2016

- 12 - The Western Union Company

In January 2017, WU reached a joint settlement with the U.S. Department of Justice and Federal Trade Commission relating to the Company’s oversight of certain agents from 2004 to 2012 and whether its anti-fraud and anti-money laundering controls adequately prevented misconduct by those agents. This year, WU will pay $601 million to settle the investigation, as well as an additional $100 million to settle an IRS tax dispute from 2011. As a result, the Company will generate about $200 million in CFFO this year, well below its historic rate of ~$1 billion in annual CFFO. However, WU will not reduce its historic pace of share repurchase (~$500 million annually), as it has raised debt in 1Q 2017 to fund the settlements (taking net debt/EBITDA to 2.0x from 1.6x). In prior reports on WU, we argued that the Company was underleveraged. It now appears that management was preparing the balance sheet to absorb a sizable settlement. WU recently increased its share repurchase authorization by $1.2 billion, to $1.5 billion (16% of its current market cap), and management stated that the buyback would be completed roughly evenly over the next 3 years (~$500 per year over 2017-2019). WU also increased its dividend by 9% in February 2017 to $0.70 annually (3.7% current yield).

Financial Projections For modeling purposes, we have made more conservative projections than in the growth scenario described earlier (10%-13% EPS growth in 2020) to account for continued macro headwinds. We have assumed that all of the Company’s growth comes from WU.com. We have projected 20% annual revenue growth out to 2020 for WU.com, a deceleration from 26% revenue growth in 1Q 2017 (28% in constant currency) and 22% in 2016 (24% in constant currency). We have also assumed that WU.com will experience modest margin improvement (a natural occurrence for a scalable business), from an estimated 10% EBITDA margin in 2016 to 15% in 2020. For the RemainCo businesses (Retail C2C, C2B and B2B), we have conservatively assumed flat revenues and EBITDA out to 2020. We have also assumed that the dividend remains constant (at $0.70 per share, or $338 million, annually), and that WU simply pays down debt with its post-dividend FCF. At the end of 2020, WU is essentially debt-free (left with net debt of $37 million, down from net debt of $2.2 billion at 1Q 2017).

Financial Projections ($MM)

2016A 2017E 2018E 2019E 2020E WU.com Revenues $345 $414 $497 $596 $716 % change 22% 20% 20% 20% 20%

RemainCo Revenues $3,959 $3,959 $3,959 $3,959 $3,959 % change --- 0.0% 0.0% 0.0% 0.0% Total Revenues $4,305 $4,374 $4,456 $4,556 $4,675 % change (0.9%) 1.6% 1.9% 2.2% 2.6%

WU.com Revs/Total Revs 8.0% 9.5% 11.2% 13.1% 15.3%

Assumed WU.com EBITDA margin 10% 11% 12% 13% 15% WU.com EBITDA $35 $46 $60 $78 $107 % change 32.0% 30.9% 30.0% 38.5% RemainCo EBITDA $1,333 $1,333 $1,333 $1,333 $1,333 % change --- 0.0% 0.0% 0.0% 0.0% Total EBITDA $1,368 $1,379 $1,393 $1,411 $1,441 % change --- 0.8% 1.0% 1.3% 2.1%

FCF $881 $888 $897 $909 $928 Dividends $312 $338 $338 $338 $338 FCF after Dividends $569 $550 $559 $570 $589 Net Debt $2,168 $1,755 $1,197 $626 $37

Valuation and Conclusion

We valued WU.com at 3.5x revenues, a discount to Xoom’s takeover multiple of 4.8x revenues. As a result of its 20% annual revenue growth, WU.com accounts for a growing portion of WU’s enterprise value over time. By the end of 2020, we estimate that WU.com will account for 27% of WU’s then EV (up from 11% in 2016).

- 13 - The Western Union Company

When stripping out the value of WU.com (at 3.5x revenues), Western Union’s RemainCo businesses (Retail C2C, C2B and B2B) have an implied valuation of just 5x EV/EBITDA at the end of 2020, a large discount to MoneyGram’s takeover multiple of 8.3x.

Implied EV/EBITDA Multiple of RemainCo (Retail C2C, C2B and B2B) ($MM)

2016A 2017E 2018E 2019E 2020E WU.com Value at 3.5x Revenues $1,208 $1,449 $1,739 $2,087 $2,505 WU EV $11,357 $10,945 $10,386 $9,816 $9,226 WU.com Value/WU EV 11% 13% 17% 21% 27% Implied EV/EBITDA of RemainCo 7.6x 7.1x 6.5x 5.8x 5.0x

In estimating WU’s intrinsic value at the end of 2020 (3.5 years out) we applied a 10x EV/EBITDA multiple to “RemainCo” (Retail C2C, C2B and B2B), which equates to 15x EV/FCF, a discount to MGI’s 21x EV/FCF takeover valuation. At 3.5x revenues, WU.com’s implied EV/EBITDA multiple is 23x, a substantial discount to Xoom’s 65x in its takeover. All told, WU’s sum-of-the-parts equates to an overall valuation of 11x EV/EBITDA and 17x EV/FCF for the Company at the end of 2020.

Intrinsic Value Estimate at the End of 2020

2020 WU.com Revenues $716 EV/Revenue multiple 3.5x EV of WU.com $2,505

2020 EBITDA RemainCo $1,333 EV/EBITDA multiple 10.0x EV of RemainCo $13,335

WU.com Implied EV/EBITDA 23.3x Overall EV/EBITDA 11.0x

Total EV $15,840 Net Debt ($37) Intrinsic Value $15,803 Intrinsic Value per Share $32.69

% Upside 72.0% 3.5-Year IRR 16.8% Dividend Yield 3.7% 3.5-Year IRR + Yield 20.4%

Our assumptions yield a conservative intrinsic value estimate of almost $33 per share at the end of 2020, offering upside of 72%, or a 3.5-year IRR of ~20% including the dividend (3.7% yield). In addition, WU currently trades near the high end of its historic dividend yield range. WU’s peak dividend yield of 3.95% was set in late 2012 (see the following chart) after a 33% plunge in the stock due to the Company reporting that C2C pricing reductions would be necessary in certain corridors to remain competitive. WU’s current dividend yield suggests an almost similar level of concern despite the fact that pricing has been stable for the past 3 years. We believe WU’s dividend provides good downside protection as well as an attractive yield.

- 14 - The Western Union Company

Interestingly, Western Union’s valuation did not improve after the Xoom and MoneyGram deals, despite the fact that the transactions highlighted WU undervalued. In our view, the market is incorrectly concerned about digital disintermediation and sees WU as too big to be acquired. We see little evidence of disintermediation, and we believe that WU’s $11.4 billion EV could be easily digested by both strategic and financial buyers. Less than a year after WU’s spin-off from First Data, KKR took First Data private in a $29 billion LBO. If an offer were made for WU, we would not be surprised to see a bidding war break out, as was the case for MoneyGram, given that Western Union and WU.com are virtually impossible-to-replicate global assets with unmatched competitive advantages. In our view, the most likely strategic buyers of WU would be global banks or payment processing companies.

Dividend Yield

Source: FactSet

Risks Western Union’s primary risks include, but are not limited to, the following:

• WU’s intercompany working capital program will peak by late 2019, and the Company might not be able to fully replace this source of FCF, resulting in a reduction in FCF available for share repurchase. • Although to date, there is little evidence of WU.com and other digital money transfer providers’ cannibalizing WU’s retail C2C business, cannibalization could pick up speed in the future if digital money transfer technology penetrates the international migrant population more deeply. • Despite WU’s industry-leading compliance efforts, there is always the risk that terrorist, money laundering, or fraud activity could become an issue and temporarily tarnish WU’s brand. • Anti-immigration sentiment could lead to possible limits on immigration in certain countries, negatively impacting WU’s traditional customer base.

Analyst Certification Asset Analysis Focus certifies that the views expressed in this report accurately reflect the personal views of our analysts about the subject securities and issuers mentioned. We also certify that no part of our analysts’ compensation was, is, or will be, directly or indirectly, related to the specific views expressed in this report.

- 15 - The Western Union Company

THE WESTERN UNION COMPANY CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited; in millions, except per share amounts)

March 31, December 31, ASSETS: 2017 2016 Cash and cash equivalents $1,323.30 $877.50 Settlement assets 3,452.0 3,749.1 Property and equipment 209.3 220.5 Goodwill 3,162.0 3,162.0 Other intangible assets 649.6 664.2 Other assets 689.8 746.3 TOTAL ASSETS $9,486.00 $9,419.60 LIABILITIES AND STOCKHOLDERS' EQUITY: Liabilities: Accounts payable and accrued liabilities (Note 5) $973.70 $1,129.60 Settlement obligations 3,452.0 3,749.1 Income taxes payable 402.5 407.3 Deferred tax liability, net 135.3 85.9 Borrowings 3,490.9 2,786.1 Other liabilities 281.3 359.4 Total liabilities 8,735.7 8,517.4 Stockholders' equity: Preferred stock — — Common stock 4.7 4.8 Capital surplus 659.7 640.9 Retained earnings 259.7 419.3 Accumulated other comprehensive loss (173.8) (162.8) TOTAL STOCKHOLDERS' EQUITY 750.3 902.2 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $9,486.00 $9,419.60

- 16 -