Deals May Strain On Refco News;

MasterCard IPO could raise up to $2.61 billion

Wed May 3, 2006 12:41 PM ET

(Adds valuation, dividend information, bylines)

WASHINGTON/NEW YORK, May 3 (Reuters) - MasterCard Inc., the world's No. 2 credit card association, expects to raise up to $2.61 billion in its upcoming initial public offering, according to a regulatory filing on Wednesday.

MasterCard may offer up to 61.5 million shares for between $40 and $43 a share in what will be the largest U.S. stock flotation in two years.

Once known as "Master Charge", the company is going public after 40 years of being a bank-owned association.

Assuming the offering prices at $41.50, the midpoint of the expected range, the company would have an initial market capitalization of about $5.6 billion, including all Class A and Class B shares. The share sale is expected to kick off on May 24, according to data provider Dealogic.

The proceeds of the offering are expected to total $2.43 billion, although that could increase to $2.61 billion if the offering's underwriters, led by Goldman Sachs Group Inc. (GS.N: Quote, Profile, Research), exercise an option to buy additional shares.

The IPO comes as MasterCard and rival credit card association Visa face a class action lawsuit accusing them and the banks that issue their cards of colluding to set artificially high interchange fees, the fees that merchants pay to credit card banks.

Also, ratings agency Standard & Poor's has said it plans to lower its ratings on MasterCard debt following completion of the IPO, which will boost lending fees.

The company intends to use all but $650 million from the offering, to redeem Class B shares. What's left over will be used to defend against legal and regulatory challenges, expand geographically and in higher growth segments of the payments industry, according to the filing.

'BRANDED NAMES'

"This is an odd beast overall," said Francis Gaskins, who analyses IPOs for IPO Desktop. "There's a lot going against it."

About 10 percent of the stock from the deal will go to a charitable foundation in Canada to which MasterCard also plans to make a $40 million cash contribution.

"You don't see that in a company that's focused on internal growth," Gaskins added.

But Sal Morreale, who tracks IPOs for Cantor Fitzgerald in Los Angeles, said the IPO, could still benefit from strong demand from retail investors.

"Deals that have come out with branded names usually attract a large retail interest and sometimes actual financials are overlooked," he said.

MasterCard earned $126.7 million on revenue of $738.5 million in the first quarter of 2005 after earning $93.3 million on revenue of $658.2 million in the same period last year, the filing said.

But price increases, which are unlikely to be repeated soon, account for 5 percentage points of the 12 percent revenue gain, Gaskins said.

The company would trade at 11 times earnings based on the first quarter profit figure, he said. Credit card issuer American Express Co. (AXP.N: Quote, Profile, Research) trades at 19 times its earnings on the same basis, he added.

MasterCard said it expects to pay out a modest annual dividend of 36 cents a share.

The company's IPO was delayed in February after its CEO, Robert Selander, was diagnosed with cancer. The offering document makes no mention of his current medical condition.

The company's stock will be listed on the New York Stock Exchange listing under the symbol "MA", according to the filing with the U.S. Securities and Exchange Commission.

Separately, MasterCard announced the names of six new directors who will join Selander on the board, including Mark Schwartz, former president and chief executive of Soros Fund Management LLC.

(Additional reporting by Justin Grant in New York)