Antitrust Avoidance by IPO

On the 18th of March 2008, VISA – the credit card company – was floated on the New York Stock Exchange in the biggest initial public offering (an IPO) in United States history. Almost half a billion shares were issued. Proceeds were close to 20 billion US dollars.

Prior to the sale, Visa Inc. had been the North-American part of ‘Visa International Service Association’, owned by its membership of thousands of commercial banks worldwide and used to jointly set the conditions for use of their credit and debit cards.

The launch of Visa Inc. had been postponed several times. It finally happened in what Fortune magazine called at the time: ‘a sea of troubles for the stock and the IPO markets’. The subprime mortgage crisis in the US had already erupted in the second half of 2007. Banks were struggling with bad assets and lack of liquidity. In the weekend before VISA went public on Tuesday, JP Morgan and the FED rescued Bear Stearns.

Despite market circumstances, the Visa Inc. class A common stock was massively oversubscribed. It was offered at 44 dollars, whereas analysts had valued it over 70 – about where it is today, despite the financial crisis having hit globally since.

Why was Visa Inc. rushed through cheap in a bear market? Some commentators believed that it was all ‘about fees, paydays and desperation’. Indeed, the original member banks maintained ownership through class B and C stock with resale restrictions – that greatly appreciated. Also, some of the largest VISA members – JP Morgan, Goldman Sachs, Bank of America – acted as underwriters, and each made hundreds of millions of dollars in transactions.

Yet there may have been another reason for the corporate restructuring, which could also have induced MasterCard to incorporate two years earlier.

Both MasterCard and VISA came under heavy antitrust scrutiny in the mid- 1990s, first in the US, and later in Europe. The regulators and the card networks – and with them economists and lawyers – have been struggling since to come to grips with what competition should look like in private payment card systems.