Visa sets possible record $18.8 billion IPO

An unidentified person holds a Visa card in Seoul November 10, 2004. Visa Inc, the world's largest credit-card network, on Monday filed to raise up to $18.8 billion a highly-anticipated public sale of shares, which could make it the largest initial public offering ever.

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, amid concern the global credit crunch 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 Monday filing 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 2000 by AT&T Wireless Group. It would also follow a fivefold increase in shares of smaller rival MasterCard Inc (MA.N) since that company raised $2.4 billion in a May 2006 IPO.

Like its rivals, Visa benefits as consumers use credit and debit cards more often. 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.

Visa also isn't directly exposed to rising defaults and late payments because it doesn't issue cards, unlike rivals American Express Co (AXP.N) and Discover Financial Services

(DFS.N).

Still, the timing of San Francisco-based Visa's offering is risky, as worries that the U.S. economy might be entering or is in a recession have chilled investor demand for stocks and IPOs.

"Visa is large, and has strong global growth potential," said John Augustine, chief investment strategist at Fifth Third Private Bank in Cincinnati. "The downside to the Visa offering may be the timing. Our fear is that as credit deteriorates, consumer spending will go down, and volumes will go down for the card networks. 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. Visa is now controlled by about 13,300 member banks and finance companies.

MASTERCARD

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 non-cash 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, posted net income 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 .GSPF 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.

But many of Visa's member banks are struggling with mounting credit losses, and some with capital shortfalls.

"There could be added volatility (in Visa shares) if some of the member banks begin to sell their holdings, perhaps to shore up capital," Fifth Third's Augustine said.

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 major retailers such as Kroger Co (KR.N) and Walgreen Co (WAG.N) that have accused card networks of price fixing.

Visa also intends to use $10.2 billion of net proceeds to redeem other shares, and the balance for general corporate purposes. It plans to pay a 10.5 cents per share quarterly dividend, for a dividend yield of about 1 percent.

Bank of America Securities (BAC.N), Citigroup Global Markets (C.N), Goldman Sachs & Co (GS.N), HSBC Securities (HSBA.L), JPMorgan Securities (JPM.N), Merrill Lynch & Co MER.N, UBS Investment Bank (UBSN.VX) and Wachovia Securities WB.N are arranging the IPO, Visa said.

(Additional reporting by Lilla Zuill in New York and Shivani Singh in Bangalore; Editing by Derek Caney)