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.

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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

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.