IPO Watch: Visa

Ann C. Logue | Mar 11, 2008 6:20am EDT | Comment

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www.visa.com
NYSE: V
Scheduled for week of Mar. 17
$16 billion proceeds
$30.8 billion post-money valuation

Finally, there’s a hot IPO. Visa, the king of the credit cards, is going public in the king of all IPOs, the biggest ever in the United States. The company, which operates the world’s largest electronic payments network used for credit and debit transactions, is currently held by a consortium of banks, and they are not selling their Class B and Class C shares. However, they may as well be, as $10 billion of the proceeds (structured as Class A shares) will be used to redeem some of their stock upon the offering. Another $3 billion of the proceeds will be put in escrow for litigation, and the rest will go to general corporate purposes.

The litigation allowance is a bit scary. Visa has four main suits against it, all of which allege different forms of antitrust. The suits have been filed separately by Discover Financial Services (NYSE: DFS), American Express Company (NYSE: AXP), a large group of merchants, and the fourth by a class of consumers. MasterCard Incorporated (NYSE: MA), which went public in 2006, had a similar list of litigation in its prospectus, but it hasn’t held the stock back. It was offered at $39 on May 24, 2006, and currently trades at $191.50. Visa’s betting that investors will see the MasterCard profits and want a chance at the same, lawyers be damned.

Lawsuits aside, Visa is nicely profitable. Pro-forma for the effects of post-IPO share redemptions, the company lost $861 million on $5.2 billion of revenue, although expenses include a $2.7 billion charge for settling litigation with American Express. Revenue was up 33% in 2007 to over the $3.9 billion posted in 2006, thanks in part to a 13% increase in the number of payments processed and a 22% increase in the cash value of these payments.

Visa doesn’t make money from interest or overdraft fees; the banks that issue the cards collect that bounty while accepting the risk of customer default. Consumers in the United States seem to be tapped out right now, which means they’ll be using their credit cards less. Visa USA makes up 69% of Visa’s revenues, although that share has been dropping steadily and should continue to do so as business grows faster in the rest of the world, offsetting that risk. It’s clear that Visa is making its lawyers rich, and it might make its shareholders well-off, too.

Upcoming IPOs:

CardioNet (www.cardionet.com; Nasdaq: BEAT; scheduled for week of Mar. 17; $518.3 million post-money valuation): CardioNet makes mobile cardiac telemetry equipment used to monitor patients with suspected arrhythmias. The devices use wireless technology to transmit information to be monitored in real time; physicians not only have access to complete data, but can also make remote adjustments to the monitoring parameters. Even though it’s been used with 109,000 patients since January of 2003, the company is losing money. In 2007, it lost $260,000 on $76.4 million in revenue, and several original investors are selling out, including Boston Scientific Corp. (NYSE: BSX), Sanderling Ventures and H&Q Funds.

Pogo Jet (www.flypogo.com; Nasdaq: POGO; scheduled for week of Mar. 17; $154.8 million post-money valuation): Pogo is a little less of a gamble than a special-purpose acquisition company, but not much. The company is developing an on-demand air travel service, scheduled to begin in early 2009, that would fly light jets between small airports located within 600 miles of New York City. Robert Crandall, the former CEO of American Airlines (NYSE: AMR), is Pogo’s CEO. The main use of proceeds is purchasing aircraft; the IPO is being run through W.R. Hambrecht’s Dutch auction process.

Recent IPOs:

BPW Acquisition (AMEX: BPW.U; Feb. 26; $417 million post-money valuation): BPW stands for Brooklyn Perella Weinberg, and the draw for this deal is the involvement of Joseph Perella. Between his experience at Morgan Stanley and Wasserstein Perella Group, he should be able to find the kind of attractive acquisition prospects that investors want (i.e. proven track records, strong earnings, strong competitive position and experienced management). Whether such a great company would go cheap is another story, but that’s the risk of special-purpose acquisition companies — at least a few will have good returns.

GHL Acquisition (AMEX: GHQ.U; Feb. 14; $485 million post-money valuation): This blank-check company was organized by Greenhill & Co., Inc. (NYSE: GHL), a merchant banking firm organized in 1996. The company has abundant experience with private equity, and that’s the draw here: that it can take investors’ funds and buy a great operating business. They’re looking for the same type of company that BPW Acquisition Corp. (AMEX: BPW-U) is. Coming soon: The Clash of the SPACs.