Visa raises $17.9 billion in record IPO
Visa Inc burned its name into the record books for US initial public offerings, raising $17.9 billion as investors seized on its growth potential and lack of direct exposure to the global credit crisis.
Visa will begin trading on the New York Stock Exchange on Wednesday.
Anticipation for the IPO was high on hopes it will emulate the success of smaller rival MasterCard Inc, whose shares have more than quadrupled since its 2006 IPO.
The stock could jump as much as 10% in first-day trading on Wednesday, said Francis Gaskins, president of research firm IPOdesktop.com.
Visa's pricing and optimism about possible first-day gains were likely helped by Tuesday's rally, as US stocks rang in their biggest one-day gains in more than five years.
Only days ago, US stocks plunged on the near-collapse of Bear Stearns Cos Inc.
MasterCard has done well despite the market slump, Gaskins pointed out. The stock rose 4.3%, or $8.73, to $210.25 on Tuesday, and gained almost 2% in aftermarket trading.
Both MasterCard and Visa are seen as good bets to avoid the market turmoil. Analysts say neither is directly exposed to rising defaults and late payments because it does not issue cards, unlike rivals such as American Express Co.
“Visa is much bigger than MasterCard,” said David Robertson, publisher of Nilson Report, an industry newsletter.
“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,” Robertson added.
Visa was priced at around 25 times earnings for the year ended September 30, adjusted for litigation reserves and other items, according to analysts' calculations. MasterCard trades at more than 35 times earnings for that period.
The Visa offering will give a much-needed boost to bank stakeholders, whose coffers have been raided by higher credit costs and losses from subprime mortgage bets.
Visa is using about $10.2 billion of proceeds to redeem shares held by its largest shareholders, including banks JP Morgan & Co, Bank of America Corp, National City Corp and Citigroup Inc.
Another $3 billion is being set aside to cover litigation costs, and the balance for general corporate purposes, according to filings.
The offering is the first bright spot for the 2008 US IPO calendar. Only 44 deals have been priced year to date, a 49% slump from the same period last year.
Underwriters, led by JPMorgan and Goldman Sachs, have the option to purchase an additional 40.6 million shares to cover overallotments, according to filings.
Visa has disclosed it expected to pay underwriters fees of about $500 million.
By raising $17.9 billion, Visa surpasses AT&T's $10.6 billion IPO in 2000, which was the record. If overallotments are exercised, the IPO could become No. 2 worldwide after Industrial & Commercial Bank of China Ltd, which raised $22 billion in 2006, according to Reuters Data.
“(Visa) shows that the IPO market is not dead,” IPO desktop's Gaskins said. (Reuters)
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