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Visa sets possible record $18.8 billion IPO

By Jonathan Stempel
/ Source: Reuters

By Jonathan Stempel

NEW YORK (Reuters) - Visa Inc, the world's largest credit card network, said it may raise up to $18.8 billion in the largest U.S. initial public offering, despite unsteady financial markets and a global credit crunch that could eat into transaction volumes.

The eagerly-awaited offering calls for Visa to sell 406 million Class A shares at $37 to $42 each, for proceeds of $15 billion to $17.1 billion, according to a filing on Monday with the U.S. Securities and Exchange Commission. Visa said it might sell another 40.6 million shares to meet demand, boosting the IPO's potential size to $18.8 billion.

A successful IPO would surpass the $10.6 billion offering in April 2000 by AT&T Wireless Group and could value all of Visa well in excess of $30 billion. It would also follow a fivefold jump in shares of smaller rival MasterCard Inc since that company raised $2.4 billion in a May 2006 IPO.

Visa, based in San Francisco, benefits as consumers worldwide rely more on credit and debit cards instead of cash and checks to make payments.

It also is not directly exposed to rising defaults and late payments because it does not issue cards, unlike rivals American Express Co and Discover Financial Services and lenders such as Bank of America Corp , Citigroup Inc and JPMorgan Chase & Co .

"Everyone is looking for a way to play the financial space without the credit exposure," said Scott Valentin, an analyst at Friedman, Billings, Ramsey & Co. "Plastic is replacing cash and checks, including on small purchases such as a meal at McDonald's. Every time a card is used, Visa gets a piece."

Visa is now controlled by about 13,300 member banks and finance companies. Much of the IPO proceeds would go to buy shares held by them, helping to offset rising credit losses.

Still, analysts said the timing is risky, given falling demand for stocks and IPOs amid worries the U.S. economy might be entering, or has already entered, a recession. A Visa spokeswoman declined to say when the IPO might take place.

"Our fear is that as credit deteriorates, consumer spending will go down and volumes will go down for the card networks," said John Augustine, chief investment strategist at Fifth Third Private Bank in Cincinnati. "That would hurt revenue and profit."

Visa plans to list on the New York Stock Exchange under the symbol "V" . It first outlined plans in October 2006 to float a majority stake through an IPO.

MasterCard shares closed down $5.03, or 2.5 percent, at $198.45. That company's market value is about $26 billion.

MASTERCARD

Citing the Nilson Report, a card industry newsletter, Visa said global card transaction volume may increase 11 percent a year from 2006 through 2012, with faster growth in the Asia/Pacific, Middle East/Africa and Latin America regions.

The Federal Reserve in December said U.S. consumers conducted 47 billion credit and debit card transactions in 2006, up 36 percent since 2003 and accounting for half of the 93.3 billion overall noncash transactions.

Volume over the three-year period rose 62 percent in debit cards and 14 percent in credit cards, Fed data show. Check volume, in contrast, fell 18 percent.

In the fourth quarter of 2007, Visa's net income more than doubled to $424 million, while revenue increased 76 percent to $1.49 billion.

MasterCard, based in Purchase, New York, reported profit of $304.2 million on revenue of $1.07 billion in the same period.

Shares of MasterCard have risen by about one-fourth since mid-2007, even as the credit crisis began to widen beyond subprime mortgages. The Standard & Poor's financial index is down about the same amount over that time.

"MasterCard has been an explosive stock, and investors may hope Visa will be the same," said Steve Roukis, a managing director at Matrix Asset Advisors Inc in New York, which invests $1.7 billion.

LITIGATION

Visa intends to set aside $3 billion of net proceeds to cover a wide variety of litigation. This includes antitrust litigation involving American Express and Discover, as well as lawsuits by retailers such as Kroger Co and Walgreen Co that have accused card networks of price fixing.

It also intends to use $10.2 billion of net proceeds to redeem shares now held by its members, and the balance for general corporate purposes. Visa plans to pay a 42 cent per share annual dividend, for a yield of about 1 percent.

The IPO would be one of the world's largest. Industrial & Commercial Bank of China Ltd raised about $21.9 billion when it went public in 2006, Reuters data show.

Banc of America Securities, Citigroup Global Markets , Goldman Sachs & Co , HSBC Securities , JPMorgan Securities, Merrill Lynch & Co , UBS Investment Bank and Wachovia Securities are arranging the IPO, Visa said.

(Additional reporting by Lilla Zuill in New York and Shivani Singh in Bangalore; Editing by Gerald E. McCormick/Andre Grenon )