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July 11, 2007

Visa IPO determines special treatment for Visa Europe

Visas registration document was filed with the US Securities and Exchange Commission (SEC) in late June, stating Visa will float 51 percent of the company in an initial public offering (IPO) scheduled for later in 2007. Visa has also outlined its intentions to combine Visa International, Visa Canada and Visa USA into a single private company, Visa Inc

By Verdict Staff

Visa has taken its first step towards becoming a publicly traded company with the filing of documents that propose its restructuring. Visa’s registration document was filed with the US Securities and Exchange Commission (SEC) in late June, stating Visa will float 51 percent of the company in an initial public offering (IPO) scheduled for later in 2007.

Visa has also outlined its intentions to combine Visa International, Visa Canada and Visa USA into a single private company, Visa Inc. Visa Europe will remain a membership association and will become a licensee and stakeholder of Visa Inc, although the document throws revealing light on Visa Europe’s power and influence in setting the terms of its own role following the restructuring of Visa.

Although the registration document contains few financial details, the documents filed with the SEC reveal that following the flotation and completion of restructuring, Visa Europe will receive common stock representing 8.4 percent of the outstanding shares of Visa Inc, an allocation of 3.6 percent of outstanding common stock, plus an additional number of shares, in order to increase Visa Europe’s percentage ownership of Visa Inc to 11.7 percent of outstanding shares.

Put-call options

Also contained within the registration document is a put-call option agreement between Visa Inc and Visa Europe which states that Visa Inc can exercise a call option to purchase all of the share capital of Visa Europe after Visa Inc’s IPO.

Visa Europe can exercise a put option that obligates Visa Inc to purchase all of Visa Europe’s share capital after the earlier of 365 days after consummation of an IPO of Visa Inc’s Class A common stock, or 605 days after the closing date of the restructuring.

If a put or call option is exercised, it must be for all the share capital of Visa Europe. This effectively means that Visa Europe’s member banks can choose to sell Visa Europe to Visa Inc following the IPO, ending Visa Europe’s supposedly independent membership status and handing ownership to the US. This move would not sit well with European regulators which are pushing for a European-owned and -controlled payment network.

However, Visa Inc’s call option can be exercised only if there is a severe decline in the number of merchants and ATMs in the Visa Europe region that accept Visa-branded products, which is considered highly unlikely to happen.

Visa Inc’s SEC registration document states Visa Europe and Visa Inc’s relationship will be governed by a framework agreement that gives Visa Europe “very broad rights” to operate the Visa business in Visa Europe’s region, and Visa Inc will have “limited ability to control their operations and limited recourse in the event of a breach by Visa Europe”.

Trademarks and technology

Visa Europe has also been granted “exclusive, irrevocable and perpetual licences” to use Visa trademarks and technology, and can also sublicense Visa trademarks and technology to its members and other sub-licensees for use within the Visa Europe region and, in some limited circumstances, outside the Visa Europe region. However, following the restructuring, Visa Europe will no longer be subject to the same global operation rules as Visa Inc.

Visa Europe will not be required to spend  minimum amounts promoting and building the Visa brand in its region and will have the freedom to develop new brands, payment processing services and other functions that may be inconsistent with Visa Inc’s global operating rules.

If Visa Inc wishes to implement or change any global rules affecting Visa Europe, then Visa Inc will have to pay for such changes. Visa Inc will also indemnify Visa Europe for any losses due to claims on Visa outside Visa Europe’s operating region. The Visa Europe indemnity applies even if Visa Inc has not participated in the actions that gave rise to any claims, thereby exposing Visa Inc to significant losses for activities over which it has minimal control.

Visa has also hired Hans Morris from Citigroup to fill the new position of president of Visa Inc. He will start his new job on 1 September, and will have oversight of Visa’s relationship with issuers and merchants, and marketing of the Visa brand.

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