Visa to Consolidate Regions, Go Public

  Visa's announcement last month that it would incorporate and go public was not unanticipated. With MasterCard Worldwide having success since doing its own initial public offering in May and some of Visa's largest member issuers facing lawsuits from merchants over alleged collusion in setting interchange rates, it was just a matter of time, observers say.
  Indeed, Visa has been making moves to resemble a public company in recent years by releasing annual reports and making a limited effort to open its rulebook to merchants.
  Visa says it will restructure itself to become a global public corporation called Visa Inc. that includes Visa Canada, Visa USA and Visa International. Visa Inc.'s shares would be listed on a "major stock exchange" within 18 months, and a majority of the shares would be sold to the public, Visa says.
  John P. Coghlan, Visa USA president and CEO, says the network decided to go public to best compete as merchants and financial institutions consolidate worldwide, consumer purchasing crosses borders, and new technologies such as wireless change the way consumers pay.
  "This will make us a more efficient organization, gain access to capital and help us with the legal claims (Visa faces)," Coghlan says.
  Coghlan declined to elaborate on how the corporate changes will affect Visa in court. Both Visa and MasterCard Worldwide, as well as some of their major issuing members, are being sued in a merchant class-action lawsuit that alleges they colluded in setting credit and debit card interchange rates.
  As a publicly traded company, Visa may improve its future legal posture in fighting merchant lawsuits over interchange, although it will not affect Visa's alleged past practices, says analyst Eric E. Wasserstrom of UBS Investment Research.
  Indeed, Visa's bank owners have been concerned about their exposure to merchant lawsuits, and they want to get out, says Gwenn B?zard, research director of Aite Group. "There's been pressure on the banks from the interchange lawsuits to turn Visa into a regular company," he says.
  Craig Wildfang, one of the merchants' lead attorneys in the suit, says it is too early to gauge the effect of Visa's changes on the merchant suit.
  Coghlan says the change will occur in three phases. First, Visa's regional organizations will hammer out a definitive agreement that must be approved by all their boards. The next step would be to create the new Visa Inc. Then an IPO could occur.
  Visa also announced it has begun a search for a chief executive for Visa Inc. and for independent directors for the company. Coghlan says he expects to remain in an executive role with the U.S. group as it prepares for the IPO. Coghlan has led Visa USA since July 2005.
  Visa is a membership organization owned by about 20,000 financial institutions worldwide. Visa claims its products are used to make more than $4 trillion in purchases globally each year, with acceptance at 24 million locations and 1 million ATMs.
  By becoming a publicly traded company, Visa will have access to greater capital to grow its business. "Visa won't have to borrow money from its members," says Wasserstrom.
  Once Visa completes its IPO, it will become a company that is at least twice the size of rival MasterCard Worldwide, a $5 billion company, analysts say. Visa's annual revenues could range between $10 billion and $12 billion based on its current price/earnings ratio, analysts estimate. Visa has 1.4 billion payment cards in circulation, and it is twice the size of its next nearest competitor, the company says.
  According to proposed restructuring, Visa Inc. would be created by merging Visa Canada, Visa USA and Visa International, which includes the operating regions of Asia Pacific; Latin America and the Caribbean; and Central & Eastern Europe, Middle East & Africa. Visa Europe will not be a part of Visa Inc.
  Visa Europe will continue to be owned by 4,500 European banks and will operate as a licensee of Visa Inc. "The structure will enable Visa Europe to focus on the significant opportunities arising from the formation of an internal market for payments through the Single Euro Payments Area," Visa states in a news release.
  Stock analysts were quick to note Visa's size, market strength and international brand name as they summed up its potential as a public company valued an estimated $12 billion.
  Visa could be the "big bad wolf" to its competitors because it holds a 60% market share of purchase volume on general-purpose cards, says Craig Maurer, an analyst with Soleil Group. In contrast, MasterCard Worldwide's share is about 27%, says Maurer.
  Adam B. Frisch, an analyst with UBS Global Equity Research, says the new Visa Inc. could enter or expand in such areas as money transfers, health care, prepaid and mobile payments. Processors including First Data, TSYS and Global Payments along with MasterCard could see their stock prices decline with Visa's entrance into the market, says Frisch.
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