Priceless discount?

26 February 2008 By Cyrus Sanati

The $19bn offering will be at a discount to rival MasterCard whose stock is up nearly fivefold since its IPO in 2006. Going ahead with the Visa deal underlines how robust the card business is. Still, a weak economy and tightening by lenders could drag on both groups’ growth.

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Visa, the world's largest credit card processor, announced that it could raise up to $18.8bn in the largest initial public offering in US history. The company will issue 406m class A shares to the public for as low as $37 to as high as $42 a piece. The 15 underwriters, led by Goldman Sachs and JPMorgan, have the right to sell an additional. 40.6m shares. At the conclusion of the offering, the majority of the company will be publically owned.

The upper share price limit given in Visa's latest filing with the Securities and Exchange Commission suggests a market capitalisation of 18 times earnings over the past 12 months, against about 24 times for MasterCard.

Visa is currently owned by a collection of financial institutions including JPMorgan Chase, Bank of America, Citigroup, and others. They will collectively receive $10.6bn of the IPO proceeds. Another $3bn is earmarked for a special litigation liability fund. The rest will go to fund Visa's operations.

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