The Beginning
It was interesting to follow in the beginning as Visa prevaricated over announcing the IPO date finally scheduling it to price the week of March 17th with a tentative trading date of March 20th trading under the symbol V. The projected deal value of $18.8 billion ranked it 2nd on the all time list behind Industrial & Commercial Bank of China’s $21.9 billion offering in 2006.
It was proposed that 406 million shares would be sold, pricing between $37 and $42 each (MasterCard opened at $39 in 2004 and is now worth $198), the public owning around half the shares and the banks the other half.
There were also concerns over some of the participants. Floyd Norris of the New York Times noticed a few salient facts about JP Morgan who were underwriting the deal along with Goldman Sachs:
1. The largest shareholder in Visa.
2. The company’s largest customer, getting breaks of pricing not available to most other customers.
3. A member of the bank syndicate that agreed to lend $3 billion to Visa to cover litigation costs.
4. Slated to get $1.1 billion from the offering, through redeeming shares.
He estimated that none of the money would go back into the company to help Visa to grow, but will all go towards the recent litigation (American Express and Discover antitrust cases) and to help the banks out with additional capital, sorely needed due to the recent credit crunch problems. However, to me at least, it always seemed like these were the points behind the IPO in the first place.
The Launch
Finally, after months of anticipation, Visa’s IPO hit the stock market (20th March), providing a shot in the arm for financial markets, weakened by the credit crunch and false rumours (HBOS). It had been multiple times oversubscribed and was priced at around $44 per share, higher than the original estimate of $37-42 and totaling 406 million shares.
This valued the company at $42.5 billion compared with $27.6 billion for MasterCard. And, of course, it has to be remembered that the new Visa Inc does not include Visa Europe, which has opted to remain private.
The IPO did rank second to the Industrial & Commercial Bank of China Ltd, almost doubling the previous US record, set in 2000 by AT & T Wireless Group’s $10.6 billion offering.
By the end of the 20th March Visa Inc had jumped more than 35%, adding more than $15 billion automatically to the company’s market value. This worked out a share value of $59.50.
The shares finished their first day’s trading at $56.50, up 28.4%. Its market capitalisation of $56.8 bn ranks Visa as one of the world’s biggest financial services houses.
Visa Inc Dust Settles
Now that the dust has settled and the Visa Inc flotation is behind us, we can say that the value finished at $19.1 billion. The underwriters exercised their over-allotment option to purchase an additional 40,600,000 shares of its Class A common stock at $44 per share. Visa expects net proceeds from the offering, including the exercise of the over-allotment option, after deducting underwriting discounts and commissions and estimated offering expenses, to be approximately $19.1 billion, the second largest of all time and the largest in US history.
As of May 2008, Visa’s share price had risen to $86.34 per share.
Current Market Value
Visa Inc has recently announced financial results for their fiscal second quarter ended March 31, 2008. Selected quotes can be found below:
“GAAP net income for the quarter was $314 million, or $0.39 per diluted class A common share. GAAP diluted class A common shares outstanding were 778 million. On an adjusted basis (reflective of a normalized tax rate and excluding litigation, restructuring and purchase amortization), net income for the quarter was $401 million, or $0.52 per diluted class A common share. Adjusted diluted class A common shares outstanding were 779 million.
Net operating revenue in the fiscal second quarter 2008 was $1.5 billion. Strong contributions were made by service fees, data processing fees, and international transaction fees as payment volumes and processed transactions rose across all regions worldwide.”
“For the period ending December 31, 2007, which impacts the March 2008 fiscal quarter, Visa's operational performance highlights include:
-- Payments volume grew 19% over the prior year to $681 billion;
-- Total volume, inclusive of cash volume was $1.1 trillion, an increase
of 21% over the prior year;
-- Total cards carrying the Visa brands rose 16% worldwide to 1.6 billion
over the prior year; and
-- Total payment transactions increased by 16% over the prior year to 11
billion.””
To be concise Visa Inc’s profit rose 28 percent in the first three months of 2008 as people charged more to their cards due to the current shaky economy.Their fiscal second-quarter profit amounted to $314 million, or 39 cents a share, up from $246 million in the same period last year. So, although some investors were still unhappy with the results, believing they should be even stronger, most people were happy with heavy year on year growth.
Comment
The Visa offering is quite an unusual situation of such of an established company going public late. This is due to their previous total ownership by the member banks and its consequent status as an association. Since 2004, when MasterCard went public, they have been losing market share, and it was felt that this was needed to compete fully. It also provides a welcome fillip to the member banks that are able to use this windfall to dig themselves out of their self inflicted credit crunch holes.
The shares were so sought after as it is not just another case of a start up with huge hopes and not a lot of history, but a company that has its roots back with “Bank of AmeriCard” in the 1950s. When this is added onto the fact that Visa is one of the few large banking institutions not affected by the credit crunch due to it not extending credit to cardholders, it was a decision that didn’t require a lot of brainpower.
It will be interesting to see how this progresses and especially how the relationship between Visa Inc and Visa Europe now proceeds as I am sure there will be a lot of people watching how their performance ranks against the other.
