Visa pushes forward with IPO

NEW YORK - Visa, the biggest credit card network in the U.S., on Friday took its first official step toward becoming a public company, outlining to federal regulators how it proposes to restructure and combine its global operations.

The registration statement filed with the Securities and Exchange Commission, which had few financial details, said Visa will float a majority of the company in an initial public offering expected to take place in early 2008. That means about half its 775 million shares outstanding - now owned by the network's member banks - would be sold to the public.

Visa, following the lead of rival MasterCard Inc., wants to convert into a public company as a way to streamline operations and raise capital to invest in new payment technologies. The offering will also help insulate member banks from billions of dollars in potential legal damages from antitrust claims brought by merchants.

The San Francisco-based company, which processes transactions for banks that issue its branded cards, announced in October its intention to list on the New York Stock Exchange. It stands to secure an enthusiastic reception from investors, especially after shares of MasterCard quadrupled since it went public in May at $39 a share; the company is currently valued at about $22.5 billion.

"We believe the restructuring will enable us to compete more effectively and better serve our customers," Visa Chief Executive and Chairman Joseph W. Saunders said in the filing. "We believe that the restructuring will enable us to facilitate a common, global approach to the legal, regulatory and competitive issues arising in today's marketplace."

Visa said in the filing it plans to combine Visa Canada, Visa International and Visa USA into a single private stock company, Visa Inc. Its West European businesses will be left in the hands of its member banks, which will together own a minority stake in the parent company.

This restructuring must happen before the company can begin working out terms of its public flotation. After the SEC declares the registration statement effective, Visa said it will begin the process of securing member approval.

The restructuring also calls for Visa to set up a panel that will consider how much money from the IPO should be set aside for legal matters. Retailers have filed suit against Visa and MasterCard, accusing them of illegally fixing the transaction fees applied to merchants with every purchase.

MasterCard set aside $650 million from its IPO to create a legal defense fund. However, according to Visa's filing, any legal settlements involving the company would come from stakes held by U.S. financial institutions, not shareholders in general.

These lawsuits have put the payment associations' members at risk, and going public will help mitigate their liability. For instance, Visa and MasterCard settled one such lawsuit in 2003 for about $3 billion. Others are still pending.

The biggest beneficiaries when Visa goes public will be the dozens of banks that make up its membership, including major U.S. financial institutions like Bank of America Corp., Wells Fargo & Co., and JPMorgan Chase & Co. They stand to reap hundreds of millions of dollars in capital gains if they sell part of their stakes.

After MasterCard completed its initial public offering, Citigroup Inc. and JPMorgan cashed out of their holdings and walked way with one-time gains worth more than $100 million.

Visa, which started in 1958 by BofA as the BankAmericard, has long been the dominant player among the world's major credit card brands. MasterCard became a serious rival when it was formed by a group of banks in 1965.

Since then, Visa and MasterCard have seen few competitors challenge their space as the leading brands. Morgan Stanley's Discover unit, which is set to be spun off from the investment bank next week, and American Express Corp.'s offerings are its biggest challengers.

Visa - which has 1.2 billion cards globally - posted net income of $525.9 million, or 68 cents per share, on operating revenue of $2.36 billion for the six months ended March 31, according to a previous SEC filing. Its domestic operations, Visa USA, accounted for more than two-thirds of profit and revenue.