MasterCard Inc., one of the world’s largest credit card brands, on Wednesday said it plans to pursue an initial public offering that would give public investors a 49 percent equity stake and voting control of the company.
The Purchase, N.Y.-based company is currently controlled by 1,400 financial institutions which issue its debit and credit cards. The offering is expected around the first quarter of 2006, and will allow those banks to retain a 41 percent equity interest through ownership of Class B common stock.
The move comes as MasterCard and Visa USA Inc. face lawsuits filed by American Express Corp. and Discover Financial Services, a unit of Morgan Stanley, seeking unspecified damages stemming from anticompetitive practices that prevented banks from offering rival cards. An unfavorable verdict could cost MasterCard and Visa hundreds of millions of dollars as suits filed under antitrust laws can seek triple damages.
“We will retain $650 million of the IPO proceeds to fund a capital increase, the economic impact of which will be borne by our U.S. shareholders,” said Chairman Baldomero Falcones and President and CEO Robert W. Selander in a letter to member banks. “Along with the proposed structural changes, we believe these resources will place us in position to defend our interests in the legal and regulatory arena.”
MasterCard said in a filing with the Securities and Exchange Commission that it will mail shareholders this week a proxy statement that will describe IPO plans in greater detail. Those shareholders will then be asked to vote at a special meeting slated to take place at the end of the year.
A spokeswoman for MasterCard declined to comment because of a standard quiet period imposed by regulators on companies planning IPOs.
The stock offering will give investors 83 percent voting rights in the publicly traded company. Additional shares of Class A common stock, representing an estimated 10 percent of the company’s equity and the remainder of its voting rights, will be issued to a new MasterCard charitable foundation.
MasterCard said it plans to use part of the IPO net proceeds to redeem Class B common shares from its financial institution shareholders. The new corporate governance and ownership structure is subject to shareholder approval, regulatory filings, and various contingencies.
In addition, MasterCard said it will appoint a new board — the majority of which will be independent.
The lawsuits filed against MasterCard and larger rival Visa come after an Oct. 4 ruling by the U.S. Supreme Court in an antitrust case brought by the Justice Department that accused them of curtailing competition. The high court’s decision let stand a lower court ruling that required MasterCard and Visa to allow member banks to issue competing cards.
That cleared the way for American Express and Discover to begin partnering with U.S. financial institutions. At the time, MasterCard labeled the action by American Express as a “misguided lawsuit.”
MasterCard began in the late 1940s when several U.S. banks began giving customers specially-issued paper that could be used like cash in local stores. Over the next two decades, several franchises evolved where a single bank in each major city would accept cards as payment with certain merchants.
By 1966, one of these groups formed the Interbank Card Association, which later became MasterCard International. As of June, MasterCard had 716.3 million branded cards in circulation. They are welcome at 23.3 million locations around the world.
Earlier this month, the company reported revenue grew 19 percent during the second quarter to $772 million. Net income during the quarter climbed 82 percent to $120 million. The company said worldwide purchase volume during the period was $290.1 billion, up 14.5 percent from the year-ago period.