| NEW YORK
NEW YORK Visa Inc (V.N) shares soared as much
as 38 percent on Wednesday in their debut on expected growth in
global credit card usage, handing a much-need payday to the
beleaguered U.S. banks among Visa's stakeholders.
More than half of the proceeds of Visa's record $17.9
billion initial public offering will go to JPMorgan Chase & Co
(JPM.N), Bank of America Corp (BAC.N), National City Corp
NCC.N, Citigroup Inc (C.N) and the other banks that are Visa
AT&T's (T.N) $10.6 billion IPO in 2000 had been the U.S.
record. Visa's IPO would place second worldwide after
Industrial & Commercial Bank of China Ltd's (601398.SS) $22
billion IPO in 2006, according to Reuters Data, if an
overallotment option is exercised.
Visa is using about $10.2 billion of IPO proceeds to redeem
stock held by shareholders, including some banks. [nN18476931]
Visa will use $3 billion of the IPO proceeds to cover
litigation costs, according to regulatory filings, and the
balance will be used for general corporate purposes.
Underwriters of Visa's deal, led by JPMorgan Chase and
Goldman Sachs & Co (GS.N), have an option to purchase an
additional 40.6 million shares to cover overallotments, which
could boost proceeds by about $1.8 billion.
Visa has said it expects to pay underwriters' fees of about
Visa is the world's largest credit card network. It
processed 32.7 billion transactions in fiscal 2007 compared
with MasterCard Inc's 18.7 billion in processed transactions,
according to their regulatory filings. Visa's fiscal year ended
The stock, sold in an IPO on Tuesday at $44, opened up 35
percent and rose as high as $60.60 on the New York Stock
Exchange. It closed up 28.41 percent, or $12.50, at $56.50,
despite a slide in the broader stock market.
"This is where those (banks) who have worked with the firm
along the way get to cash out, and receive a reward for all of
their efforts," said James Owers, professor of finance at
Robinson College of Business at Georgia State University.
"The extra wealth is particularly valuable at this time
given the challenges to many of the major players," Owers said.
MORE PLASTIC AS ECONOMY WEAKENS
While banks that issue credit cards are bracing for
write-downs on bad debt amid a weakening U.S. economy and
tighter credit, payment processors like Visa are seen as well
placed to benefit as more people use credit cards to pay for
everyday expenses like a cup of coffee and a taxi ride.
"Visa enjoys one of the widest economic moats that a
company can desire -- a network that connects thousands of
financial institutions," Morningstar analyst Michael Kon wrote
in an investor note. It would be very hard for a rival to
duplicate that network, he said.
San Francisco-based Visa, which processes transactions for
credit and debit cards, is one of the companies best positioned
to benefit from growing consumer reliance on "paper-free
payment methods," said Kon, who assigned the shares a fair
value estimate of $74.
The Nilson Report, an industry newsletter, projects that by
2010, 70 percent of all payments will be made with credit or
The Visa IPO is the first bright spot this year for the
U.S. IPO sector, which has fallen into the doldrums as the
credit market crisis spooked investors. The volume of IPOs so
far in 2008 is about half what it was a year earlier, according
to data tracker Dealogic.
"This will have some positive impact," said Professor
Owers. "However, clearly Visa is rather unique with its
established business model, its cash generation and its sheer
visibility ... I don't think it will lead to a pick-up in (IPO)
Keen investor interest in Visa's offering comes as smaller
rival MasterCard Inc (MA.N) has seen the value of its shares
more than quintuple since its May 2006 IPO.
Based on Visa's opening share price, the company has a
market value of about $48 billion, compared with MasterCard's
On the same basis, Visa shares are valued at 20 times
annualized fourth-quarter earnings, compared with MasterCard's
richer multiple of 26 times 2007 profit.
Both MasterCard and Visa are seen as good bets despite
market turmoil. Neither is directly exposed to rising defaults
and late payments because neither issues cards, unlike rivals
such as American Express Co (AXP.N) and Discover Financial
MasterCard shares closed down less than one percent, or
$1.86, at $208.39 on Wednesday. They are down about 2 percent
this year, while American Express has fallen about 18 percent.
(Editing by Lisa Von Ahn, John Wallace, Toni Reinhold)