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02/26/2008
News / Visa readies IPO that could boost U.S. economy(02-25) 10:23 PST SAN FRANCISCO -- Visa, the world's dominant credit and debit card processor, is forging ahead with its much-anticipated plan to sell shares to the public, capping a far-reaching makeover of one of the world's most familiar brand names.In a document filed with the U.S. Securities and Exchange Commission on Monday, San Francisco's Visa disclosed terms of a blockbuster initial public offering that could bring in up to $18.8 billion. Such a deal would be the largest IPO in U.S. history. The transaction promised to shake up financial services and open the way to more competition and innovation at a time when the business of processing electronic payments is growing explosively around the world. Visa said it will sell a majority stake on the open market later this year at a price between $37 and $42 per share. The money raised would eclipse the $10.6 billion taken in by AT&T Wireless in 2000, the U.S. market's previous IPO record-holder. Analysts say a sale of shares by Visa, the most powerful competitor in the rapidly expanding business of processing electronic payments, could prove a tonic to a stock market besieged by a housing bust and recession fears. It would come two years after a similar move by rival MasterCard, the No. 2. electronic payment processor, whose shares have multiplied fivefold in value since its May 2006 IPO. "These two companies are in a really good spot," said Red Gillen, who follows the payment processing industry for the consulting firm Celent. "They have a very dominant position in electronic payments. It would be hard to recreate what Visa and MasterCard have created already." Visa's move forward with its IPO helped lift U.S. stocks Monday: The Dow Jones industrial average rose 189.20 to 12,570.22. Investors viewed Visa's action as a vote of confidence in the market. Until recently, Visa was an association controlled by its member banks, which kept it on a short leash. In October 2006, Visa announced its intentions to go public. Then, in October 2007, Visa reorganized as a for-profit corporation and consolidated five operating divisions. As a public company, Visa will be able to free itself from bank control and take the payment processing business wherever it thinks it can make money. Credit and debit card customers won't notice the difference right away because they don't deal directly with Visa. They get their payment cards from banks and other financial institutions. Visa allows those financial institutions to issue cards under its brand name, and it processes electronic payments for them, making sure that merchants are paid and transactions are charged to the correct accounts. Visa doesn't itself extend credit or offer cards to consumers. In the long run, though, the reinvention of Visa and MasterCard as public companies could lead to broad changes in how consumers and business pay for products and services. "Sometime down the road, it could lead to the introduction of new technologies," said David Robertson, publisher of the Nilson Report, a payment industry trade journal. In its IPO registration, Visa said it will use cash it gets from the offering to partly pay off the banks that currently own its shares and to settle a series of lawsuits from competitors and others who have challenged aspects of its business. The rest will be used to invest in its operations. The banks will keep a minority ownership stake. Beyond that, though, the independence and capital that come from a public offering have become strategic necessities for Visa. In recent years, as the banking industry has become dominated by a handful of giants, such as the new Bank of America, Citigroup and JPMorgan Chase, that relationship has become tense. The banks increasingly dictated the terms of their relationships with Visa and MasterCard, skimming advantages for themselves and playing one processor off another. Visa and MasterCard "had to look at pursuing their own agendas in highly competitive environments," Robertson said. And when MasterCard raised more than $2 billion in capital, cash it could use to develop new products and promote its name, "Visa needed to keep up," Gillen said. Market experts say Visa's stock could attract investors looking for a safe haven in a gloomy economic environment. Consumers increasingly are using credit, debit and stored value cards to pay for things for which they previously would have used checks or cash, such as doctor's visits and fast food purchases. "There are very large macro trends that are winds in their sails," Gillen said. But market pros caution that it will be hard for buyers of Visa's shares to see the kinds of gains enjoyed by those who invested early in MasterCard. That's because Visa and its investment bankers see that MasterCard set its offering price low and are determined to set a higher value for their IPO shares. "Having observed how much MasterCard has risen in price, the underwriters and owners of Visa want to capture more of that value," said Andrew Bischel, president of SKBA Capital Management in San Francisco. That's particularly true because many of the banks that own Visa have lost money on housing-related investments and need cash to shore up their capital. Visa disclosed Monday that it will offer 406 million shares plus an additional 40.6 million shares to meet market demand. The banks that own Visa stock now will retain roughly 400 million shares. That would give Visa a total enterprise value of roughly $32 billion or $33 billion at the offering, depending on the closing price. By comparison, online auctioneer eBay has a market capitalization of roughly $38 billion. When the offering price is set, Visa CEO Joseph Saunders will be granted 831,444 options to buy Visa stock, an award worth about $11 million, according to the company's registration. J.P. Morgan Securities Inc., Goldman, Sachs & Co., Banc of America Securities LLC, Citi, HSBC Securities (USA) Inc., Merrill Lynch & Co., UBS Investment Bank and Wachovia Securities are underwriting the offering. The Visa shares will have the sticker symbol V on the New York Stock Exchange. Sam Zuckerman,George Raine, Chronicle Staff Writers Tuesday, February 26, 2008 Source: http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2008/02/26/MNCFV8CL4.DTL |
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