plans to add $700 million into an ongoing escrow account for litigation expenses through the repurchase of common stock.
More than 16,000 financial institutions that hold Class B shares of Visa's stock, formerly the company's member banks, will "bear a corresponding financial impact via a reduction in their converted share count" as a result of funding the escrow account, according to the release. This has the effect of a repurchase by the company of $700 million of Class A Common Stock on an as converted basis, it said in a release.
Visa, which went public in March 2008, operates the world's largest electronic payments network. The company, like rival
, makes its money on transaction fees and does not hold customers' credit card debt on its balance sheet.
Prior to a restructuring completed last year, Visa was organized as multiple associations by country. So-called member banks owned shares in the various associations. It now operates under one holding company, with the exception of Visa Europe.
But because of its wide swath, Visa is involved in several legal and regulatory proceedings. As of March 31, Visa had approximately $2.1 billion set aside in its litigation escrow account.
Visa, along with MasterCard, had previously settled ongoing lawsuits with
Discover Financial Services
. The two credit card companies had alleged that Visa and MasterCard had conspired to keep them from entering the bank-issued credit card space.
Separately, Visa is also involved in a host of class action and individual complaints filed since 2005 on behalf of merchants against Visa, regarding overcharges on so-called interchange fees. The suits allege Visa, MasterCard and member banks were involved in setting default interchange rates, which violated federal and state antitrust laws.
Keefe Bruyette & Woods analyst Sanjay Sakhrani says $700 million is likely funded through the net proceeds received from the company's Brazilian affiliate, VisaNet, which went public last week.
Still, repurchasing shares is a positive move for the company, Sakhrani writes in a note.
He estimates that about 11.1 million Class A shares (1.5% of diluted shares outstanding) will be repurchased and that the conversation rate for Class B shares declines to about 0.58434 from 0.6296, according to a note.
"Based on our estimates, the escrow reserve presently was almost entirely composed of future payments that have to be made to Discover and American Express," Sakhrani writes in the note. "So, adding to the fund does not entirely seem unreasonable. Clearly, the addition of funds could mean the company is getting closer to some kind of finality on the merchant litigation damages."
Visa shares were modestly rising on Tuesday.