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The Western Union 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

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The Western Union 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 GICS Sector: Information Technology The Western Union 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.
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