Visa IPO prices above range; largest IPO ever; a play on MA which is up 435% since its IPO debut in May 2006 (44.00 )

Wednesday, March 19, 2008

Credit card giant Visa (V) prices its IPO at $44, above the expected range of $37-42. Visa, the world's largest credit card network, sold 406 mln class A shares, making this the largest IPO of all time. Visa-branded cards are accepted in more than 170 countries. The co has more branded credit and debit cards in circulation, more transactions and greater total volume than any of its competitors, including Mastercard. This IPO has been widely anticipated and there was some speculation that it would be delayed due to the weak overall market. However, the co decided to go ahead with the deal. Anticipation has been high because Mastercard (MA) has been a huge winner. MA priced at $39 in May 2006, opened modestly higher at $41 and is now trading at $210 for a +435% move in less than two years. Also, MA has done very well even as the overall market has been selling off, it's up 35% since late Oct. This has generated a lot fo excitement about Visa. Both MasterCard and Visa are seen as good bets to avoid the market turmoil. According to Reuters, citing analysts, neither is directly exposed to rising defaults and late payments because it does not issue cards, unlike rivals such as American Express (AXP). Visa is much bigger than MasterCard and the expectation is that by being freed from the constraints of being a not-for-profit member-owned association, it could become an even more formidable competitor to MasterCard.... Unlike credit card lenders, Visa does not carry any consumer debt on its books. The 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, according to the AP. 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 utility bills. Visa estimates about 42% of its transactions fall into this "nondiscretionary" category, up from 27% in 2000. As such, Visa could even benefit from tougher times if more cash-strapped consumers rely on their credit cards to make ends meet. Even if consumers cannot pay back the debt, Visa still makes money which is an attractive model. This is a large offering of 406 mln shares, led by JPMorgan and Goldman. (IPOXX)