Visa gambles on giant IPO

Stock offering planned at ticklish time

NEW YORK -- Stocks are shaky, credit is tight, the economy might be tipping into a recession. Not the best of times to be going to the markets for what could be the largest initial public offering in U.S. history.

That's the gamble Visa is taking as it gave details Monday about an IPO that could raise almost $19 billion: If it works, it could be an encouraging sign to the stock markets and might even help loosen the credit knot.

While Visa's IPO will have little direct effect on its cardholders, the banks that issue Visa cards are expected to see a total windfall of $10 billion -- which might keep them from pulling back credit lines further and pushing rates higher.

"That's a good thing for the banks, and a good thing for consumers. It might help ease the credit crisis a bit," said Ben Woolsey, marketing director at the card information Web site CreditCards.com.

Banks have suffered huge losses tied to defaults on subprime housing loans and are gearing up for more as consumer credit deteriorates. JPMorgan Chase -- which has a 23 percent stake in Visa -- stands to gain the most. The more cash-strapped Citigroup and Bank of America are also Visa stockholders.

Visa said Monday in a Securities and Exchange Commission filing that it will offer 406 million shares at $37 to $42 each, following its rival MasterCard in shifting from being a privately held interest to a publicly traded company. If there is enough demand for Visa stock, underwriters will have the option to buy an extra 40.6 million shares.

The San Francisco-based company would not say exactly when it planned to float its shares, but IPO research firm Renaissance Capital, based in Greenwich, Conn., said it believes the offering will price on March 19 to begin trading March 20.

Weak IPO demand

Demand for IPOs has been incredibly weak recently, reflecting nervousness among investors about placing bets in untested waters.

Last year at this time, IPO returns were outperforming the broader stock market, and now they're underperforming. The number of companies going public has dwindled to 18 so far this year from 34 at the same time in 2007, according to Renaissance Capital, which operates IPOhome.com.

A robust Visa IPO "could be the spark that is needed," said Kathy Smith, a principal at Renaissance Capital. "It shows that there is a belief that investors want to put new capital to work in this company."

Visa expects to see high demand for its stock despite the housing-led credit squeeze that is threatening consumers' spending and their ability to keep up with debt payments.

Like MasterCard, Visa is a card processor -- not a lender -- so it makes its money through fees from the banks issuing its cards and the merchants accepting them. And like MasterCard, Visa could see more struggling consumers increasingly use their cards for such high-cost necessities as health care, food and gasoline, which could boost the fees Visa earns.

Delaying the IPO process would "be like turning around a massive steamship and could raise speculation about what's wrong," Woolsey said. The company has been planning for an IPO this year since a filing with the SEC in June.

MasterCard raised $2.39 billion in its IPO nearly two years ago. Its shares have risen fivefold since then and are trading at more than $200 each, but they have fallen more than 5.5 percent since the beginning of the month.

Most transactions

In the United States, Visa is the largest card company by market share and has a strong presence in other countries, where many people are just starting to use plastic instead of cash. The 44 billion transactions totaling about $3.2 trillion that Visa processed in 2006 nearly doubled the number of transactions by MasterCard, its biggest competitor.

Visa's IPO, even if it prices at the low end of the estimated range, would surpass the $10.6 billion AT&T Wireless raised in 2000 when it went public. And if demand is strong enough, it could be almost as big as the two largest past deals combined -- AT&T's offering and Kraft Foods' $8.7 billion IPO in 2001.