Visa Inc, the world's largest credit card network, has been steadily moving toward a public sale of shares, with investors hopeful that the IPO would emulate smaller rival MasterCard's blockbuster stock market debut in 2006.
Now the offering may have hit a snag - falling stock markets have plunged the US IPO market into an ice bath, chilling the prospects of many offerings that were planned for early 2008.
Credit card companies could be particularly vulnerable because of the downturn in consumer spending that could accompany a recession, something economists view as increasingly likely. Signs of the downturn have already hit credit card companies like American Express Co, which surprised Wall Street earlier this month by warning that it was facing mounting consumer loan losses even among its relatively upscale customers. Rival Capital One Financial Corp has struggled lately as well.
Capital One on Wednesday posted a 42 percent decline in earnings. Visa in November filed to sell shares to the public and has since been restructuring its business to prepare it for the IPO. Analysts had generally expected the company to float its shares during the first half of 2008.
But analysts said with the stock market taking it on the chin, shareholders will most likely decide it is better to stall the offering - which could raise as much as $10 billion - until things are more stable.
"The fact that the market is so volatile right now could dampen appetite," said David Robertson, publisher of the Nilson Report, a semi-monthly credit card industry trade journal. "There was a time when it would have been good to get it out before the end of the first quarter, but now with the downturn it may be a question of 'why rush?'"
Visa spokesman Paul Cohen declined to comment on the offering's timing, saying he is limited in what he can say during the pre-IPO registration period. More clues as to how the slowing economy is affecting credit card companies may materialise next week when American Express and MasterCard report quarterly results, and may shed some light on their expectations for the coming year.
American Express is forecast to post a decline of about 5 percent in earnings per share to 71 cents, while MasterCard's earnings per share are seen more than doubling to 72 cents.
Investors have retreated from equities in general as the benchmark Dow Jones Industrial Average has fallen nearly 7 percent so far thin weeks it had filed with the US Securities and Exchange Commission to sell its shares to the public.
In short order, Visa reached a settlement with American Express over allegations of anti-competitive practices, and booked a large loss in fiscal 2007 to boost its reserves for other potential legal settlements.
It has also carefully designed a multi-class share structure to ensure that the big banks that now control it will only be able to sell shares over a 3-year period, according to Richard Peterson, director of capital markets at Thomson Financial.
The sheer size of the offering and the clout of the Visa name have created high expectations for its IPO, which could potentially be one of the largest in US history. MasterCard, seen as the best yardstick for Visa, has risen sharply since its IPO, but worries about weaker consumer spending have taken a bite out of some of its gains.
The shares have fallen 11 percent since early in the year. That is still roughly 450 percent above its $35 offering price, giving Visa's closest competitor a market value of about $25 billion, according to Reuters data.
Although a price range for Visa's share sale has not yet been set, the IPO could be the second-largest ever after 2000's $10.6 billion offering by AT&T Wireless Group, and Visa is expected to have a larger market value than MasterCard.
"They won't want to take Visa out until it will be a success," said Aaron Katsman, managing director, of Israelnewsletter.com and America Israel Investment Associates LLC. "But it will be a good one when they do, and all institutional investors will want to have a piece."
Still, few question that the IPO will happen once conditions ripen. The company has secured a coveted one-letter symbol from the New York Stock Exchange, planning to list its shares under the ticker "V".
"The financial institutions that are the owners of Visa Inc are committed to selling, and Visa is ready to roll without the constraints of being a member-owned organisation," said the Nilson Report's Robertson. "It has been hamstrung in many ways."
Last October, Visa Inc closed on a restructuring that combined its US, international and Canadian operations. Another affiliate, Visa Europe, opted to remain a member organisation, but has a minority stake in Visa Inc.
Under the restructuring, Visa is obligated to make "reasonable efforts" to float its shares to the public by February, or 120 days hence, it disclosed in a regulatory filing. If it failed to launch the IPO by early May, it would stand to have certain obligations of its members suspended, according to the filing.