RIVERWOODS, Ill. – Discover Financial Services said it paid its former parent, Morgan Stanley, $775 million from a $2.75 antitrust settlement with Visa and MasterCard agreed to before the card company was spun off from Morgan Stanley in 2007.
The settlement comes after a New York state Supreme Court justice last month ruled that Discover had to pay Morgan Stanley a special dividend negotiated when the credit card company was spun off.
At the time of the June 2007 spinoff, Discover agreed with Morgan Stanley to share money received from an antitrust lawsuit Discover had pending against Visa and MasterCard. Discover settled the antitrust case for $2.75 billion, of which Morgan Stanley was entitled to $1.2 billion.
However, Discover declined to pay Morgan Stanley, claiming it interfered in the Visa and MasterCard settlement. Morgan Stanley, which is based in New York, then sued Discover in a New York court for breach of contract.
Discover paid the taxes on the settlement money, which was put in an escrow account pending the outcome of the lawsuit. That means the settlement will be added directly to Morgan Stanley's profit since taxes already were paid on the money.
The huge payment was part of a settlement of charges by Discover that Visa’s and MasterCard’s policies barring card issuers from issuing competitors’ cards – so-called exclusivity clauses – violated antitrust laws. American Express also has reaped huge payments form the two cards companies for similar claims.
