Visa makes astounding stock market debut
SAN FRANCISCO (AP) - March 19, 2008 In early trading, the shares had climbed to $58 from their IPO
price of $44.
The enthusiastic response signals Wall Street believes the
world's largest processor of credit and debit cards is well
positioned to profit as more as people rely on its electronic
network to make payments instead of cash and checks.
In the weeks leading up to the IPO, Visa's management pledged 20
percent earnings growth for at least the next two years.
Visa also touted itself as a safe have during the credit crunch
that has scarred many of the lenders that issue its cards.
Unlike those lenders, Visa doesn't carry any consumer debt on
its books. The San Francisco-based company makes its money from
processing fees, which have been steadily rising for years,
including the past two U.S. recessions in 1991 and 2001.
Since the last recession, Visa also has been able to entice
consumers to use its credit and debit cards more frequently to pay
for staples like groceries, gas and even utility bills. Visa
estimates about 42 percent of its transactions fall into this
"nondiscretionary" category, up from 27 percent in 2000.
The formula helped produce the United States' most lucrative
IPO. Visa sold 406 million shares at $44 apiece late Tuesday to
raise nearly $18 billion. Driven by strong demand, the IPO price
topped the range of $37 to $42 per share that Visa set three weeks
ago, and complete the most lucrative initial public offering in
U.S. history.
Investment bankers could still exercise an option to buy another
40.6 million Visa shares during the next 30 days. If that happens,
Visa's IPO will end up raising $19.7 billion before expenses.
"This shows that all the recent financial turmoil obviously
hasn't bothered a lot of people," said Nicholas Einhorn, an IPO
analyst for Renaissance Capital of Greenwich, Conn.
Visa conceivably could benefit from tougher times if more
cash-strapped consumers rely on their credit cards to make ends
meet, said Aite Group analyst Gwenn Bezard. "And even if people
can't pay back the debt, Visa still makes money. It's a very
attractive company."
The IPO should help bolster the wobbly financial services
industry as banks write off billions of dollars in loans that have
soured amid the worst housing slump since the 1930s.
More than $10 billion of the IPO proceeds are being used to buy
back some of the shares owned by the banks that have helped build
Visa during the past 50 years.
JPMorgan Chase & Co., Visa's biggest customer and shareholder,
is in line for the biggest payoff from Tuesday's IPO - about $1.25
billion, based on figures provided in Securities and Exchange
Commission documents.
That's five times more than New York-based JPMorgan has agreed
to pay in a proposed takeover of investment bank Bear Stearns Co.,
a major casualty of the credit crisis.
Other big winners in Visa's IPO include: Bank of America Corp.,
expected to receive roughly $625 million; National City Corp.,
about $435 million; Citigroup Inc., about $300 million; and U.S.
Bancorp and Wells Fargo & Co., both getting more than $270 million.
All the banks will remain major Visa shareholders.
The IPO also is expected to generate more than $500 million in
fees for Visa's team of investment bankers, led by JPMorgan and
Goldman Sachs & Co.
Besides paying banks, Visa is depositing $3 billion in an escrow
account to insulate its shareholders from lawsuits alleging the
company profited by stifling competition.
Those legal headaches are one of the chief reasons that Visa
decided to go public and pose the biggest investment risk in the
IPO, Bezard said.
The IPO gives investors a chance to profit from the rise of
electronic payments as more people eschew cash. The trend is
expected to accelerate in the years ahead as an entire generation
weaned online grow up to enter the job market and begin buying more
merchandise and services on the Web, where electronic payments are
standard.
Visa already dwarfs its closest competitor, MasterCard Inc.,
whose stock has more than quintupled since that company went public
less than two years ago.
But analysts say Visa priced its IPO more aggressively than
MasterCard, making it less likely that its stock will appreciate as
dramatically in the months ahead.
Visa processed 44 billion transactions totaling $3.2 trillion in
2006, according to the Nilson Report, an industry newsletter.
MasterCard handled 23.4 billion transactions totaling $1.9 trillion
in the same year.
Hurt by legal expenses, Visa suffered an $861 million loss on
revenue of $5.2 billion in its last fiscal year ended Sept. 30.
Visa bounced back in its fiscal first quarter with a $424 million
profit, a 70 percent increase from the previous year.