In the biggest U.S. IPO of the year, MasterCard Inc. shares surged in their stock market debut Thursday even though the world’s No. 2 credit-card brand originally priced below expectations.
MasterCard shares rose $7, or almost 18 percent, to $46 to close on the New York Stock Exchange. The shares priced at $39 each to raise $2.39 billion, while the stock jump tacked on another $400 million.
The long-awaited IPO will go down as one of the market’s biggest in the past two years, eclipsing the $1.7 billion raised when Google Inc. went public in 2004. Purchase, N.Y.-based MasterCard is now valued at about $6 billion, an amount projected to move higher as investors clamor to get a piece of one of the most venerable names in financial services.
“There seems to be enough faith in their business model for people to accumulate the stock, and investors have been very reluctant with IPOs lately,” said Peter Dunay, chief investment strategist with Leeb Group, a New York-based investment firm that manages a $155 million portfolio.
The size of the initial public offering came up short of the company’s original expectations as MasterCard fell victim to a volatile market and concerns over its mounting legal problems. MasterCard’s originally forecast its IPO price in a range of $40 to $43 a share.
Weighing on the offering 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 offer price.
There has also been continued concerns over MasterCard’s legal and regulatory problems. Architects of the IPO designed it as a defensive measure to shield the company from a legal assault by retailers who feel fees are too high and continued regulatory concern over antitrust issues.
Investors largely shrugged off those concerns when 61.52 million MasterCard shares — representing a 46 percent stake in the company — started trading under the symbol MA. Proceeds from the deal will mostly be used to redeem Class B shares, allowing the 1,400 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 legal troubles. Both it 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. There has also been speculation MasterCard could itself become an acquisition target, or use proceeds from stock offering to make its own.
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 to a filing with the Securities and Exchange Commission. MasterCard also reported a 12 percent increase in revenue, to $738.5 million during the quarter.
Citigroup Global Markets and Goldman Sachs & Co. are the lead underwriters on the stock sale.