Wall Street Meltdown
A funny video that also does a good job of summarizing the problems on Wall Street.
VISA IPO - Goldman Sachs Financial Institutions Group
Overview:
Visa, a leading provider of credit and debit cards, plans to raise up to $10 billion in the second largest IPO in United States history. The San Francisco-based company processes more than half of all credit card transactions in the United States and has a strong global brand. Visa plans to be listed under the symbol “V,” but has not disclosed the number of shares that will be offered or the expected share price. The IPO is expected to occur near February, 2008. Goldman Sachs and JP Morgan are lead underwriters.
Demand for Visa’s stock is expected to be high because revenues are expected to increase as consumers increasingly use credit and debit cards instead of other payment methods. According to The Nilson Report, global card purchase transactions are expected to increase at a CAGR of 11% from 2006 to 2012. MasterCard Inc., Visa’s next largest rival, went public in May, 2006, raising $2.4 billion. MasterCard’s share price has increased nearly fivefold since the IPO.
Currently, Visa is primarily owned by a number of banks including JPMorgan, Bank of America, and Wells Fargo. These banks stand to reap hundreds of millions of dollars in capital gains if they sell part of their stakes. The IPO filings do not indicate if the banks plan to sell their stakes after the IPO.
As part of the IPO, Visa has restructured into Visa Inc. via mergers involving Visa USA, Visa Canada, and Visa International. Visa believes this restructuring will increase efficiency, help address current legal claims, and improve access to capital. This restructuring needed to occur before the IPO.
Strategic Rational:
Proceeds from the IPO would fund Visa’s growth in a market that has become more competitive since a 2004 Supreme Court ruling stopped Visa and MasterCard’s duopoly on bank-issued creditcards. The IPO would allow Visa to invest more in new payment technologies, such as using cell phones or smart cards, which are embedded with microprocessors or memory chips and don’t require access to a remote database at the time of purchase.
Proceeds would also provide further resources for potential payment in many outstanding lawsuits against VISA, enhance VISA’s access to capital, provide resources for acquisitions, and allow for employee stock options. Stock options will provide Visa with a strong method of motivating employees, especially as employees at rival MasterCard have benefited significantly from stock options.
VISA has faced significant litigation from merchants such as Kroger, and antitrust litigation from Discover Financial Services and American Express. Visa recently disclosed that a $1.1 billion operating loss in 2007, but operating revenue rose 33 percent to $5.2 billion. The loss included nearly $3 billion in reserve for outstanding litigation. The company also disclosed it set aside $1.9 billion related to American Express litigation and a $650 million reserve related to Discover
litigation. Capital raised during the IPO will help address some of the financial limitations caused by this litigation.
The Offering:
A large amount about the specifics of the offering has not yet been disclosed. Class A common stock will be offered in the IPO. In connection with the 2007 restructuring, different share classes were issued. Class B common stock is held by financial institution customers that are members of Visa U.S.A. Class C (series I) common stock is held by financial institution customers that are associated with Visa Canada and AP, LAC and CEMEA regions. Class C
(series II, III and IV) common stock is held by Visa Europe.
A portion of this class B and C common stock will be subject to mandatory redemption. Class B and C shares will become convertible to class A shares after the third anniversary of the IPO. All share classes may receive dividends, but only class A shares have voting rights. Visa will also be authorized to issue up to 25,000,000 shares of preferred stock.
Valuation:
Because of Visa’s dominance in the credit and debit card industry, analysts expect the company to have a higher valuation than MasterCard following the IPO. MasterCard currently has a market cap of $23.4 billion.
Howard K. Mason, an analyst at Sanford C. Bernstein & Co., estimated Visa will be initially valued at $32 billion. This figure equals 22 times projected 2008 earnings which were calculated from the IPO prospectus. This value is half way between MasterCard’s initial valuation of 16 times and its price at the time of the report of 29 times.
More Information:
IPO S-1 Form Press Release http://www.corporate.visa.com/md/nr/press745.jsp
Visa Restructuring Press Release - http://www.corporate.visa.com/md/nr/press302.jsp
Reuter’s Overview - http://www.reuters.com/article/bankingFinancial/idUSN2126761120071224
SEC S-1/A & S-1 Forms: http://www.sec.gov/edgar/searchedgar/companysearch.html
(Search Company Name: Visa Inc.)
Other Notable Goldman Sachs FIG Deal:
American Financial Realty & Gramercy Capital (GS advising Gramercy Capital)
Rothschild - Firm Overview
Rothschild is an over 200-year-old international investment bank that primarily provides investment banking, corporate banking, and private banking and trust services to business, governments, and individuals. The London based firm has over 2,000 employees worldwide. By utilizing advanced information and new approaches and solutions Rothschild attempts to have a competitive edge that can help clients
With 40 offices in over 30 countries, the firm has a global presence allowing Rothschild to better serve clients. The firm’s UK investment banking business was named the most active investment bank in Europe for the fifth consecutive year. Rothschild has United States offices in New York and Washington
Rothschild is a leader in global M&A. The firm ranked eleventh in total announced global M&A deals according to Thompson financial. Rothschild is also active in debt advisory and restructuring in Europe, Asia, and America.Rothschild North America contains investment banking, asset management, and real estate divisions. Investment banking businesses include merges and acquisitions advisory, restructuring, private placement, and a project finance team
When to Issue Debt Versus Equity
Companies face the challenge of determining whether to issue debt or equity for financing needs. Issuance of debt or equity both have advantages and disadvantages.
Advantages of Issuing Debt:
1. Issuance of debt has a tax benefit because of the debt tax shield. The interest payments to debt owners are expensed, causing a reduction taxable income. A company with a higher tax rate thus has a higher tax benefit from debt issuance
2. Some assert that debt adds discipline to management because interest expenses cause lower left over cashflows, which makes management more likely to be efficient and non-complacent. Also, future debt obligations can be easily forecasted and planned for.
WallStreetOasis.com
I am very interested in investment banking. Currently, I am searching for internships related to investment banking, asset management, or equity research. WallStreetOasis.com is a great resource for this job search. The forum contains a wide variety of wall street professionals and other students searching for similar careers. Combined, the group serves to facilitate a great environment for learning more about the interview process and wall street careers in general.
Liar’s Poker
I just finished reading Liar’s Poker
The book is filled with Wall Street greed, trickery, deceit, innovation, and power struggles. I think this book is an excellent and very enjoyable read, and I would highly recommend Liar’s Poker
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