Print

Mail

wiki links

Investors snap up Visa's initial public offering

The credit crisis that has been haunting the stock market for months was not enough to scare investors away from the initial public offering (IPO) of the world's largest credit card processor.

Overcoming the jitters that have battered many of the lenders that issue its cards, Visa Inc sold 406 million shares at US$44 apiece late on Tuesday to raise nearly US$18 billion and complete the most lucrative IPO in US history.

The price topped the range of US$37 to US$42 per share that Visa set three weeks ago, reflecting high demand to own a piece of a company that's promising earnings growth of 20 percent despite a credit crunch that's choking the U.S. economy.

"This shows that all the recent financial turmoil obviously hasn't bothered a lot of people," said Nicholas Einhorn, an IPO analyst for Renaissance Capital of Greenwich, Connecticut.

Investment bankers could still exercise an option to buy another 40.6 million Visa shares during the next 30 days. If that happens, Visa's IPO will end up raising US$19.7 billion before expenses.

Visa faced another litmus test yesterday, with its shares scheduled to begin trading on the New York Stock Exchange under the "V" ticker symbol. The San Francisco-based company will make its debut with a market value of about US$36 billion.

Based on the strong demand among money managers who wanted a piece of the IPO, Einhorn anticipates Visa shares will quickly soar above US$50.

Visa has been touting its stock as a safe haven -- a message that apparently resonated with investors.

"In times like this, you generally see a flight to quality," said Joel Greenberg, a New York attorney who has advised on other IPOs.

Unlike credit card lenders, Visa doesn't carry any consumer debt on its books. The company makes its money from processing fees, which have been steadily rising for years, including the past two US recessions in 1991 and 2001.

Since the last recession, Visa also has been able to entice consumers to use its credit and debit cards more frequently to pay for staples like groceries, gas and even utility bills. Visa estimates about 42 percent of its transactions fall into this "nondiscretionary" category, up from 27 percent in 2000.

Visa conceivably could benefit from tougher times if more cash-strapped consumers rely on their credit cards to make ends meet, Aite Group analyst Gwenn Bezard said.

"And even if people can't pay back the debt, Visa still makes money. It's a very attractive company," Bezard said.

The IPO should help bolster the wobbly financial services industry as banks write off billions of dollars in loans that have soured amid the worst housing slump since the 1930s.

More than US$10 billion of the IPO proceeds are being used to buy back some of the shares owned by the banks that have helped build Visa during the past 50 years.

JPMorgan Chase & Co, Visa's biggest customer and shareholder, is in line for the biggest payoff from Tuesday's IPO -- about US$1.25 billion, based on figures provided in Securities and Exchange Commission documents.

That's five times more than New York-based JPMorgan has agreed to pay in a proposed takeover of investment bank Bear Stearns Co, a major casualty of the credit crisis.

Other big winners in Visa's IPO include: Bank of America Corp, expected to receive roughly US$625 million; National City Corp, about US$435 million; Citigroup Inc, about US$300 million; US Bancorp and Wells Fargo & Co, both getting more than US$270 million.

All the banks will remain major Visa shareholders.
This story has been viewed 601 times.