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Visa Files Terms for IPO

Laurie Kulikowski

Visa hopes to raise as much as $18.76 billion in one of the largest initial public offerings on record, according to the proposed terms filed Monday with the Securities and Exchange Commission.

The San Francisco-based credit card company plans to offer 406 million shares for between $37 and $42 apiece, according to the regulatory filing. The company proposes the shares would trade on the New York Stock Exchange under the symbol, "V."

Underwriters, including leads JPMorgan Chase(JPM Quote) and Goldman Sachs(GS Quote), would have the option to purchase as much as 40.6 million additional shares.

Anticipation for Visa's debut as a public company has been intense, as smaller rival MasterCard(MA Quote) has run up more than fourfold since its May 2006 debut.

Visa's IPO, expected to price on March 19 and begin trading the following day, will be one of the largest initial public offerings on record and the largest in the domestic financial services sector, according to Dealogic.

The largest global IPO to date was the $21.9 billion offering of Industrial & Commercial Bank of China in October 2006. The largest U.S. IPO was AT&T Wireless Services, which raised $10.6 billion in April 2000, Dealogic said.

MasterCard, Visa's largest rival, is approaching the second anniversary of its IPO, but market conditions are very different from when the Purchase, N.Y.-based company went public. Shares of MasterCard surged 17% on its first day of trading, after it raised $2.57 billion from its IPO price of $39 a share.

MasterCard's IPO is very different than that of Discover Financial Services(DFS Quote), which completed its spinoff from Morgan Stanley(MS Quote) in June. Since then, shares of the slower growth credit card network have fallen by nearly half.

Some observers have expressed skepticism as to whether now is the right time for Visa to go public, as the credit crunch and ensuing housing crisis proves more troublesome for consumers. Delinquencies on credit card loans and auto loans have ticked up at American Express(AXP Quote) and large credit card issuers like Citigroup(C Quote) and Capital One(COF Quote).

But Visa, like MasterCard, does not issue cards, nor does it hold consumer loans on its balance sheet. So it would seem that the payment processing companies are in a better position to withstand consumer-related troubles than some of their competitors and customers. Both generate revenue primarily from fees for card service, data processing and international transactions, obtained from member banks and other financial services companies. In addition, Visa will benefit from the continuing transition from cash payment to electronic forms of payment, particularly outside the U.S.

Still though, the laundry list of investment banks advising Visa show how eager banks are to get the IPO done -- and collect their fees -- particularly as the environment for deals in general remains scant.

"If not now, when? The IPO [market] is really uninspiring this year," says Rich Peterson, the director of capital markets at Thomson Financial. "It's a global brand, at one point the economy is going to have to pick up. Once there is some resolution with housing, subprime, ...a Visa offering could stand out. There are so few IPOs this year, they're going to be like the marquee name in the absence of anyone else."

So far this year, 18 U.S. IPOs have been completed -- most of which have been so-called blank check IPOs, or those completed by special acquisition purpose companies -- for a total deal value of roughly $4 billion. That compares to 40 IPOs, which raised $8 billion, in the comparable time period last year, according to Dealogic.

"This one deal is really going to skew the number for 2008 [and will be the] biggest paycheck for Wall Street," Peterson says. Fees could be roughly $500 million for the 15 banks involved, he estimates.

Visa's two largest customers are JPMorgan Chase and Bank of America(BAC Quote), respectfully, with each generating "more than twice the issuing volume of our next largest customer," Visa said an updated annual filing. Last year, it recognized operating revenues in 2007 of $454 million from its relationship with JPMorgan Chase and $384 million from BofA.

Visa had "pro forma" revenue of $5.2 billion and a "pro forma" net loss of $861 million for its fiscal 2007 year, which ended in September, the filing said. The loss was primarily from a $1.9 billion litigation provision related to settlement of with American Express over antitrust issues in the bank-issued credit card space, as well as a $650 million provision related to Discover litigation.

Visa said in the updated registration filing that "unaudited operating revenues" were $1.5 billion for its fiscal first quarter ended Dec. 31. Its net income was $424 million for the period.

Following the IPO, Visa intends to deposit $3 billion of proceeds into an escrow account for litigation settlements. It also plans to use $10.2 billion of proceeds to buy back certain stock held by institutional holders. The rest will be used for other corporate and strategic purposes, Visa said.

Visa also plans to pay a quarterly cash dividend of 10.5 cents a share, or 42 cents annually, starting in the quarter ending in June.

Visa expects to record an additional litigation provision of approximately $285 million this quarter, it added.