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By Jason Simpkins
Visa Inc. (V), the world's largest payment-card network, expects to raise $17 billion in what may be the largest initial public stock offering (IPO) in U.S. history.
Underwriters of the deal will have the opportunity to sell an additional 40.6 million shares, which would push the total value of the deal to $18.8 billion.
In its prospectus filing with the Securities and Exchange Commission, Visa said it would sell 406 million shares between $37 and $42 each.
"Based on the size of our network, the strength of the Visa brand and the breadth and depth of our products and services, we believe we are the leading electronic payments company in the world," the company said.
Visa hopes its success will rival, even surpass, that of the smaller MasterCard Inc. (MA), which went public in May 2006. Shares of MasterCard debuted at $39 and have since quintupled – currently trading near $200 a share. Of course, Visa recorded 44 billion transactions in 2006, compared to 23.4 billion for MasterCard.
The "MasterCard factor" will help Visa overcome slumping demand for IPOs, David Menlow, president of IPOFinancial.com, told Bloomberg News. The abrupt jump made by MasterCard shares "is a sore point for many IPO investors who missed it."
Revenue for both MasterCard and Visa surged in recent years, as consumers became increasingly comfortable using credit and debit cards for their purchases. Debit and credit cards will be instrumental in 55% of all U.S. transactions by 2011, according to the Nilson Report of Carpinteria, Calif. That's up from 40% in 2005.
Neither company actually issues credit or debit cards. Instead, they process electronic transactions and generate revenue from the fees and interest rates cardholders are charged when using their bankcards. As a result both companies are far less tethered to consumer spending, and not liable for defaults on credit.
Earlier this month, Visa reported that its profit doubled to $424 million in the quarter ended Dec. 31. Its revenue soared 76% to $1.49 billion.
Meanwhile, MasterCard has outdone analysts' estimates every quarter since its $2.4 billion IPO. The company's fourth-quarter results were no exception, as profit increased sevenfold to $304.2 million.
Visa said $3 billion of the sale's proceeds would be put into an escrow account to pay legal settlement. Another $10.3 billion will be used to redeem stock held by the company's member banks.
News and Related Story Links:
- Wall Street Journal:
Visa's IPO Could Be Largest in U.S. History