Visa Plans $19 Billion IPO

With the US economy floating near the edge of recession, IPOs are not the rage on Wall Street. Yet, credit card company VISA is going ahead with a record $19 billion deal for about half its stock. The question is whether that is a good deal in this market or whether waiting for a stronger market would be even bigger.

To date, the IPO for AT&T’s wireless unit back in April 2000 is the biggest IPO ever at $10.6 billion. Market conditions then weren’t too good either. The AT&T deal didn’t do badly, but it wasn’t a barn burner either. AT&T Wireless is no longer independent, having returned to AT&T through a series of telecom mergers.

In Visa’s case, the large banks that own sizeable quantities of Visa stock need to fix their balance sheets because of the subprime mess. And rival MasterCard had an IPO of its own in not quite a year ago. MasterCard’s IPO was priced at $39, which some analysts thought was a bit undervalued (maybe $40-45 a share was more realistic). Yet it traded yesterday in the high $190s. That kind of increase in value would help a lot of banks.

What’s Visa going to do with the cash? Its SEC filing (Amendment no.4 to its S-1 if one cares) said, “We intend to deposit $3.0 billion into an escrow account from which settlements of, or judgments in, the covered litigation described under 'Business—Retrospective Responsibility Plan' will be payable. Following the completion of this offering, we intend to use $10.2 billion of the net proceeds to redeem 123,216,659 shares of class B common stock and 143,037,934 shares of class C common stock, assuming no exercise of the underwriters’ option to purchase additional shares.” Those B and C classes are non-voting stock owned by JP Morgan Chase & Co., Bank of America Corp., Citigroup Inc. and other US banks, which means a cash infusion to them.

Despite this blockbuster of an offering, the US IPO market remains in weak condition. In the 18 IPOs done this year, research specialist Dealogic said just $4 billion has been raised. A year ago, 40 deals had brought in $8.1 billion by this spot in the calendar. And with no sense of optimism on Wall Street, IPOs should continue to lag behind last year’s pace.

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