Credit Card Firm Seeks to Raise $18.8 Billion
By Tomoeh Murakami Tse
Washington Post Staff Writer
Tuesday, February 26, 2008
NEW YORK
Visa said Monday that it is looking to raise as much as $18.8 billion in what would be the largest initial public offering ever for a U.S. company.
In a filing with the Securities and Exchange Commission, Visa said it plans to offer 406 million shares at $37 to $42 each, with an option for the deal's underwriters to buy an additional 40.6 million shares.
If it goes well, the Visa IPO would give a boost to its member banks, which include Bank of America, J.P. Morgan Chase, HSBC, Capital One and Citigroup. Some banks have been hit with billions of losses on subprime mortgage-related securities and have actively been looking to raise capital.
The details of the long-anticipated IPO comes as public appetite for risky investments, including stocks, has waned significantly with shares of financial companies hit particularly hard as the credit crunch worsens. The date of the IPO has not been determined.
But some analysts and institutional investors expressed confidence about the stock offering, saying the deal is likely to been greeted by solid demand.
"The IPO market could use a good shot in the arm, and this is probably the deal that will give it to them," said Sal Morreale, a trader at Cantor Fitzgerald who follows stock offerings.
Despite growing worries about a possible recession this year and declining consumer spending, analysts point to several factors that make them optimistic about Visa's initiative.
Visa, unlike competitors American Express and Discover Financial Services, is strictly a processor of credit card payments. It does not extend credit to consumers, issue credit cards or have a direct relationship with merchants, all of which could make it vulnerable in the current credit environment. In that way, Visa is like its smaller rival, MasterCard, which went public less than two years ago and has since seen its shares grow fivefold.
"Visa is just connecting the bank that issues the card to the consumer to the bank that the merchant uses to deposit its card receipts," said David Robertson, publisher of the Nilson Report, which tracks the credit card industry. "They just move bits of data from point A to point B. It could be for four cents, or it could be for $4 million. They just get X number of pennies per transaction."
And transaction volume has been growing. Card purchases made up 42 percent of all U.S. transactions in 2006, up from 29 percent in 2001, according to Nilson, which expects that proportion to rise to 55 percent by 2011.
Visa is the runaway market leader, with 65 percent of the share of card transactions worldwide compared with 28 percent for MasterCard, according to Nilson. American Express, JCB in Japan and Diners Club split the remaining 7 percent.
The IPO is far larger than previous offerings by U.S. companies. The biggest to date is AT&T wireless service's $10.6 billion offering in April 2000, followed by the $8.7 billion deal for Kraft Foods in 2001, according to Dealogic.
Robertson said Visa benefits from following MasterCard, which raised $2.4 billion in its IPO and whose market capitalization now exceeds $26 billion.
MasterCard "has spent all that time educating institutional investors about what it is that a company like Visa and MasterCard do," he said. "It might seem as if the market's kind of rocky, but the market is always looking for companies that they can really easily understand. After the scrutiny that MasterCard faced, I think investors understand what Visa is all about."
Analysts said Visa offers attractive growth opportunities because of its global operation, which could help the firm should U.S. consumer activity buckle.
"Although it's technically a financial company, it's really in the sweet spot given all the troubles that are afflicting the market now because it does not take the risk that the cardholder does not pay off their obligation," said David Dietze, chief investment strategist of Point View Financial Services. "This is a world where the credit card is fast supplanting paper. It's really a global changeover."
Still, not everyone is enthusiastic about Visa's prospects.
Randy Bateman, chief investment officer of Huntington Asset Advisors, said he pared back his exposure to credit card companies. Last summer, he significantly reduced his fund's holding in ACI Worldwide, a provider of software for processing electronic payments, on fears that consumers would cut back on spending. This could have a ripple effect on all credit card companies.
"We're still concerned about the consumer," Bateman said. "I'm afraid we're probably going to avoid Visa at this stage. I'd rather . . . miss some of the turn but be much more convinced that the consumer is heady and heading in the right direction."
Staff researcher Richard Drezen contributed to this report.
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