MasterCard: Change at the Top on Tap

PURCHASE, N.Y. ( TheStreet.com) -- Signs of a changing of the guard sooner rather than later are mounting at MasterCard ( MA).

It is a widely held belief that MasterCard's hiring of former Citigroup ( C) executive Ajay Banga earlier this year made him the heir apparent at the company. Just when that transition will occur, however, is still a subject of speculation.

A Securities and Exchange Commission filing on Friday may provide a clue. President and CEO Robert Selander entered into a new prearranged trading plan under SEC Rule 10b5-1, in which he plans to sell a "limited amount" of the company's shares for "personal financial management purposes," the filing said.

The plan, which will commence on Selander's 59th birthday on Oct. 9 and terminate by Feb. 19, 2010, allows for the sale of as much as 48,713 shares of class A common stock associated with restricted stock awards. It also allows for the sale of as much as 48,075 shares of common stock related to underlying stock option awards, the filing says.

The prearranged trading plan -- which allows an executive to buy and sell stock legally, despite being in frequent contact with material public information -- is fairly common. Under the predetermined plan, a third-party broker buys or sells stock automatically. Last week, Citadel investment Group filed plans with the SEC to enter a similar prearranged trading program to reduce the size of its stake in E*Trade Financial ( ETFC).

Selander has sold shares of MasterCard in the past, but the proximity to this latest plan to lighten up on the stock looks like a guy preparing his portfolio for retirement. Roger Smith, an analyst at Fox-Pitt, Kelton Cochran Caronia Waller, says Selander's actions are likely a result of a combination of factors, all of which will lead to his eventual stepping down.

"The whole thing is tied (1) hiring Mr. Banga, (2) Selander's likely retirement from company in a year and (3) the need to not be so reliant on one company for most of his wealth," Smith says in an email.

"The diversification is truly needed once you no longer run the company," Smith adds. "This is a very conservative way to start the diversification effort that will likely continue in retirement."

At MasterCard, Banga, 49, will initially serve as president and chief operating officer. He will be responsible for key business operations including customer relationships globally, products, services, marketing, technology and operations. The company's finance, human resources, and law and franchise integrity functions will continue to report to Selander, MasterCard said in a release at the time of his hiring.

According to his employment agreement with MasterCard, made public in a June 19 SEC filing, Banga is set to receive severance payments if he terminates employment with the company for "good reason." One so-called good reason is if the company fails to promote him to the chief executive by June 30, 2010 "with such offer to become effective not later than January 1, 2011," among other things, the filing says.

Fox Pitt's Smith wrote in a June 19 note that while the employment agreement is fairly standard, Banga's non-compete clauses are "narrower" than the standard agreement with respect to entities covered if MasterCard does not offer him the promotion in the set timeframe.

"The announcement of Ajay Banga was the first step in a succession plan," Smith says in an email Tuesday. "While the company doesn't say that Mr. Banga will get the top spot for sure, they haven't suggested that it is unreasonable to think it will occur."

MasterCard shares have risen 39% this year, while rival Visa's ( V) shares have risen 28%, a hefty feat considering that most other financial stocks have fallen this year.

Robert Dodd, an analyst at Morgan Keegan, does not read too much into Selander's move.

"I don't think this is necessarily any indication that a transition is in anyway imminent in the next year or so," he says. " The plans have become very much kind of the norm of how to basically realize a little cash from your stock holdings. They're certainly not unusual for anyone at this stage."

MasterCard said in an official statement that the new 10b5-1 contract is a "personal investment decision" on the behalf of Selander and "likely a decision Mr. Selander's part to diversify his holdings" in MasterCard, "where he has obviously accumulated a significant percentage of his personal holdings" in the company, according to an e-mailed response.

Selander will be subject to the company's executive stock ownership guidelines until he reaches age 62, "whereby he is encouraged to hold at least six times his base salary in stock," the filing on Friday says.

Selander began at MasterCard in 1994, after working for more than 20 years at Citi. Last year, the longtime chief executive made $11.2 million, primarily from the awarding of restricted stock and stock options. Selander's salary was $983,333 in 2008.

-- Written by Laurie Kulikowski in New York.

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