“Visa’s IPO Is Worth a Close Reading” (via WSJ)

March 22, 2008

Herb Greenberg reports in The Wall Street Journal on March 22 [Page A11, subscription required] on what we have long been mentioning – The Visa IPO risk factors. 

Unfortunately, it wasn’t until after the drunken jubilation subsided that investors are beginning to understand what is at stake.  We posted the Visa Inc. SEC filing and risk factors on Dec 22.  Why was the media as negligent as investment advisers and underwriters in better not explaining the facts behind the largest IPO in our nation’s history?  Was it greed, or the rush to get the deal done at all costs.  Now that the party is over and that window of opportunity to complete the IPO is sealed, sobriety comes in a few weeks, when the billions in Federal Reserve loans are called.   

Click here to read the Herb Greenberg WSJ article.

Excerpts:

  • Investors generally overlook “risk factors,” as they are called. These can be found in all IPO prospectuses and 10-K annual reports filed with the Securities and Exchange Commission. This is where the company is supposed to bend over backwards to tell you where the booby traps might be.”
  • Much of it is boilerplate, but Visa’s warnings go beyond mere boilerplate to some specific issues that could very well spook investors if and when they ever make it into the headlines.  Consider, for example, that the first eight pages of its risk factors are devoted to legal and regulatory matters. Most companies usually start with business risks, but with Visa — and MasterCard — the lawyers (and some politicians) have had a field day.  Perhaps the stickiest concern has to do with lawsuits, as Visa puts it, over the amount of money the credit-card companies charge merchants.”

  • Visa Inc. Files 10-K Annual Report, Amends S-1 Registration
    key point: “Failure to successfully defend or settle the interchange litigation would result in liability that to the extent not covered by our retrospective responsibility plan could have a material adverse effect on our results of operations, financial condition and cash flows, or, in certain circumstances, even cause us to become insolvent.” 
  •  Want to know more about lead plaintiff ScanMyPhotos.com?  Click here and read their daily blog: Tales from the World of Photo Scanning


    Visa Inc. $45 Billion Market Value Still $5 Billion Under Potential Liability

    March 19, 2008

    [Click here for March 19, AP story on Visa Inc. IPO by Michael Liedtke]

    Based on Visa Inc’s. closing stock price after its first day of trading (down by more than 12-points from its intra-day trading high of $69 a share), the giant credit card association’s market value is about $45 billion.  The stock was up just $1.50 a share from its trading-day low of fifty-five dollars.  Even so, the credit card cartel’s valuation is still $5 billion shy of the reported $50 billion potential  legal liability, according to Legal Times.  As with MasterCard, the antitrust liability could lead to the company’s insolvency, according to Visa’s SEC filing.

    While Visa might be somewhat insulated from credit problems facing the banks, which still own nearly half the company, they along with MasterCard are very much in the cross-hairs of the merchants who are forced to accept the card cartel’s dominant 80% market power. 

    Even as a new group of owners join the thousands of member banks by stepping onto the field, the years of antitrust price-fixing charges remains with the new and prior owners.


    “Why the Visa IPO is So Hot” (via MSN: MoneyBlog)

    March 19, 2008

    Click here to read Anthony Mirhaydari’s report in MSN’s MoneyBlog)

    Excerpt:

    • “…And there are some legal issues too: Since 2003, for every dollar of revenue Visa generated, 28 cents was paid out in settlements. Most of the litigation centers on the interchange rates Visa charges to merchants on each transaction and various other antitrust issues.”

    Shareholders Take Visa; Banks Run With $10,000,000,000 Payday

    March 19, 2008

    Because the new Visa Inc. shareholders remain hypnotised by the market success of MasterCard’s IPO, here are some leading morning-after profiles about why the banks bailed on Visa, cashed out $10 billion, plus another $3 billion for litigation reserves. 

    Visa is the richest IPO ever in U.S. history, but for who?

    Did you know that the initial initial public offering was expected to yield only $5 billion?  And, after deducting the legal reserves, the banks and the underwriters proceeds that is about all that might be left.

    “At Stake is More Than $50 Billion if the Merchants are Successful” (Legal Times)

    Visa Inc. IPO Valuation – $74 a share?

    “[B]anks Also Stand to Shed Some Liability” (The Charlotte Observer)

    “Visa’s Lucrative House of Cards” (SF Chronicle)

    Twilight Zone: The Movie, Visa and MasterCard Style

    UnfairCreditCardFees.com

    Visa Inc. IPO Largest in US History; First it was 5, then 10 and Now $18.8 Billion – That’s Some Rich Valuation Appreciation

    “Significant Victory” Announced Against MasterCard by Class Plantiffs

     “Visa’s initial offering expected to fetch $5-billion

    Visa’s Inc’s $10,000,000,000 Misguided Hedge From Litigation

    “Visa’s IPO Use of Proceeds Plan and Interchange Overview

    Visa Inc. Files 10-K Annual Report, Amends S-1 Registration

    How the Fed’s $200-Billion Intervention Indirectly Boosts Visa’s IPO Valuation

    “Will Visa IPO Deter Antitrust Lawsuits?” (Financial Week)

    “IPO View – Visa IPO Hit by Unexpected Snag–Recession Fears” (Reuters)

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    Want to know more about lead plaintiff ScanMyPhotos.com?  Click here and read their daily blog: Tales from the World of Photo Scanning


    Visa prices IPO at $44 a share, above expected range, raising a record $18 billion

    March 18, 2008

    The lessons of greed by leading financial institutions have not been learned – click here.   

    A funny thing happened on the way to “Vegas,” for those readers of the earlier posts, including [“If We Were in Vegas, Our Wager Would Be on Visa’s IPO Not Happening,”]. 

    Several weeks ago we began raising the question of whether the Visa IPO would be delayed or derailed.  After the most recent financial market earthquakes, we opined for the latter and with good reason.  We strongly felt that investors would be more risk adverse, pay closer attention to the IPO risk factors and analyze the banks’ need to bail out from Visa. 

    However, the historic moves within the past 48-hours by the Federal Reserve by adding liquidity, covering the Bear Stearns takeover and announcing new protocols to lower key interest rates all helped temporarily prop up the financial markets.  Perhaps just long enough to keep the IPO window open for Visa’s thousands of member banks to run for the hills. 

    WayTooHigh.com – The Credit Card Interchange Report will be closely monitoring and updating the events of the next few days and beyond.

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    Want to know more about lead plaintiff ScanMyPhotos.com?  Click here and read their daily blog: Tales from the World of Photo Scanning


    “Visa Set to Charge” (via Brifing.com)

    March 18, 2008

    Click here to read the Jeffrey Ham report in Brifing.com

    Excerpts:

    1. While many companies use the proceeds of IPOs to build their balance sheet and fund expansion, Visa is using $3 billion of the capital raise to fund litigation expenses.  Both Visa and peer MasterCard (MA) have been hit with lawsuits related to interchange fees charged to merchants for card transactions.”
    2. “Those interchange fees fuel Visa’s and MasterCard’s profit engine.  Neither company issues credit or cash to consumers.  Rather, they process the transaction and charge merchants a fee for conducting the sale.”

    “The Visa IPO” (Prospective from CreditSlips.com)

    March 18, 2008

    CreditSlips.com has a detailed overview and discussion of the Visa IPO at this link.

    Excerpts:

    1. “This market seems like terrible timing for an IPO, although for liquidity-strapped banks, the IPO could be a much-needed source of cash.”
    2. “A major factor driving Visa’s IPO is antitrust liability. It is Visa’s litigation exposure… and, on a much larger scale, the potential antitrust liability connected to interchange and merchant restraint litigation and the possibility of legislative changes to interchange.”
    3. “Recent developments on interchange and merchant restraints don’t bode well for Visa. The European Union, Australia, Brazil, Colombia, Germany, Honduras, Hungary, Israel, Mexico, New Zealand, Norway, Poland, Portugal, Romania, Singapore, South Africa, Spain, Sweden, Switzerland and the United Kingdom have all moved against or begun to regulate interchange fees and the merchant restraints that shield interchange from normal market pressures. US regulators have been behind the curve on this, but there’s now interchange legislation pending in several states (none of its particularly aggressive—at worst prohibiting interchange on sales tax) and a bipartisan bill was recently proposed in the House that would create as special administrative law judge panel to oversee interchange rate arbitration and set rates if necessary.”
    4. “The Visa IPO creates a company with an unusual 3 stock-class capital structure that can only be explained as an antitrust shelter. Like MasterCard’s post-IPO structure, the Visa post-IPO capital structure is designed to permit banks to retain effective control over the company without holding a majority of shares and giving a veneer of independence to decisions about the setting of the interchange rate and network rules, in short plausible antitrust deniability. The structure also reduces banks’ antitrust exposure going forward, albeit at the cost of some of Visa’s revenues, but as a mutual-type member association, Visa was not designed to be a profit center in the first place.”