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Long-Awaited Visa Offering Tests The Power Of Plastic By Amy Reeves INVESTOR'S BUSINESS DAILY, Posted 11/19/2007 |
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Visa Inc., San Francisco, Calif. |
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Lead underwriters: |
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When Visa filed its initial prospectus Nov. 9, it wasn't exactly a surprise. But it caused excitement nonetheless. |
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It's been more than a year since the world's No. 1 credit-card brand announced it was planning to go public, and that was after months of rumors. |
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The reason why wasn't exactly a secret. In May of last year, MasterCard (MA) pulled off 2006's most lucrative IPO, and only saw improvement thereafter. Now it's trading five times its initial offering price. |
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Still, Visa couldn't rush in on its main rival's coattails. Like MasterCard, it wasn't originally a corporation at all, but a sort of cooperative run by its member banks. It wasn't until May of this year that Visa formally incorporated, headed by all-new leadership. |
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The time lapse, however, means that Visa is entering a quite different market from MasterCard. The mortgage crisis this summer slammed the financial industry as a whole, and the suffering retail market isn't going to lend much support to a credit card business. |
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Given MasterCard's recent stock performance, though, investors seem not to be all that worried about the sector. Still, IPO Desktop's Francis Gaskins warns not to expect MasterCard redux. Visa must go public by contract to its shareholders, partly to pay for litigation it's involved in. That means that the yet-to-be-named price may reflect more desire for quick cash than for a good aftermarket. |
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"This is strictly a play on the industry," said Gaskins. "I think they'll price it to get their money, because they need it." |
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THE COMPANY |
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Visa is the largest credit-card brand in the world. Last year, it hosted 44 billion transactions worth $3.2 billion, nearly twice as many as its nearest rival, MasterCard. |
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The current corporation was organized in May out of five separate entities: Visa U.S.A., Visa International, Visa Europe, Visa Canada and Inovant, which operated Visa's transaction processing system. All are now subsidiaries of Visa Inc. except for Visa Europe, which still belongs to its member banks. However, it has a contract with Visa Inc. and a put-call option to sell itself to the mother company after the offering. |
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Visa U.S.A. provides about three-quarters of total revenue. The Asia-Pacific region is the second most lucrative. |
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RISKS/CHALLENGES |
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Like the rest of the credit-card industry, Visa has been in the middle of a legal controversy over interchange fees. Several countries are taking regulatory action, and some 50 class-action lawsuits are in the works over the issue. The battle is leeching money from Visa, and could result in damages. |
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Also, Discover has sued both Visa and MasterCard for alleged anti-competitive practices. This, too, could bring damages. Other legal and regulatory issues are also pending in various countries. |
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The credit-card business tends to rise and fall with the overall economy. An economic downturn would likely cut into Visa's profits. |
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Visa faces competition from MasterCard, American Express, Discover and various private-label cards issued by merchants. |
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Only four banks account for 23% of Visa's revenue, with JPMorgan providing 10% by itself. A disruption in any of these relationships would hurt the company. |
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The structure and management of Visa Inc. is still quite new, so it doesn't have much of a track record in its current form. |
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THE RESULTS |
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The new combined company took in $3.9 billion in revenue in the first nine |
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months of the year, and $771 million in net income. The firm provided historical data only for the Visa U.S.A. segment, which showed 18% revenue growth over the prior year and a 79% gain in net income. |
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USE OF PROCEEDS |
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Terms have not been set yet, but Visa has said it could raise up to $10 billion from the IPO. It will reserve an unspecified amount of this for litigation, some for redeeming preferred stock and the rest for general corporate purposes. |
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THE MANAGEMENT |
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Joseph Saunders |
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Byron Pollitt |
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John Morris |