MasterCard Corp.’s bid to become a public company got off to a shaky start Wednesday after the world’s No. 2 credit-card brand priced its stock below expectations, falling victim to volatile market conditions and concerns over its mounting legal problems.
The Purchase, N.Y.-based credit card association’s stock will begin trading on the New York Stock Exchange Thursday morning with an initial public offering price of $39 — below the $40 to $43 range it originally expected.
The $2.39 billion offering will go down as one of the largest in two years, eclipsing the $1.7 billion raised when Google Inc. went public in 2004.
Weighing on the price were several factors, including recent erratic market conditions that led to a lackluster IPO from Vonage Holdings Corp. on Wednesday. The country’s leading Internet phone provider’s stock fell 13 percent below its initial offering price.
But what might end up being the main culprit is investor concern over MasterCard’s legal and regulatory problems. Architects of the IPO designed the flotation as a defensive move to shield it from a legal assault by retailers who feel fees are too high and continued regulatory concern over antitrust issues.
“This was a soft one-two punch for MasterCard,” said David Menlow, president of IPOFinancial.com. “This reflects buyers concerns with uncertainty of pending litigation, there’s just a little more of a concession being made because it’s out there and unresolved.”
“The markets didn’t help them, either,” he said.
However, the chance to own one of the world’s top financial services brands is expected to still lure investors, especially since the stock price is within easy reach of even the smallest investors.
Some 61.52 million shares — representing a 46 percent stake in the company — will begin trading Thursday under the symbol MA.
The deal values MasterCard — which is owned by its 1,400 member banks — as an almost $6 billion company.
Proceeds from the deal will mostly be used to redeem Class B shares, allowing the banks that make up MasterCard’s association to begin unwinding their stakes. MasterCard will also use about $650 million raised in the public flotation to fund a war chest to protect itself from mounting legal troubles.
MasterCard and larger rival Visa International face ongoing legal battles over what are known as interchange fees, which retailers pay the associations to process credit and debit card transactions. Merchant groups have already filed a class-action suit alleging unlawful price fixing of fees that hurt both merchants and consumers.
In addition, both MasterCard and Visa have also been sued by American Express Co. and Discover Financial Services LLC, the credit card division of Morgan Stanley, for anticompetitive practices that blocked member banks from issuing cards on their rival networks.
Visa, which is also owned by member banks, has said it doesn’t plan to go public.
MasterCard is expected to use its new status as a public company to expand globally, and move into higher growth businesses within the payment industry.
“Listing on the NYSE marks a major milestone for MasterCard and reinforces our commitment to continued growth and building value for our customers and stockholders,” said Robert W. Selander, MasterCard’s president and chief executive.
The IPO had been delayed from the first quarter after MasterCard disclosed Selander’s prostate-cancer diagnosis, reviving it to time with his recovery from treatment.
The company recently posted a $126.7 million profit for the quarter ending March 31, up almost 36 percent from the year-earlier period, according a filing with the Securities and Exchange Commission. MasterCard also reported revenue rose almost 12 percent to $738.5 million during the quarter.
Citigroup Global Markets and Goldman Sachs & Co. are the lead underwriters on the stock sale.