VISA Wants to do the Largest US IPO of all time? Right now?
Well, I guess if the fees are juicy enough Visa will pull it off as there is little other business around for investment banks to work on. But still, with consumers cutting back use of their credit cards after maxing out what they could and with debt experts predicting trouble ahead, who can think buying Visa (V) at $37 to $42 a share is a grand idea? Two examples: The Blackstone Group (BX) went public at what NYSE traders thought was the top of the private equity market and still, got their price. Looking back, June 2007 at $31 did turn out to be the top as that stock and private equity in general has fallen into a steady slide. BX closed yesterday at $17, almost 50% lower than the IPO price . Then we had renowned value investor Sam Zell selling his REIT, Equity Office Properties at what proved to be the top of the REITs market, as many said at the time, and with hindsight that forecast has also proved correct. Seems that these two still fresh experiences would prevent Visa from going public or at least not being received very welcomingly by investors.
The Visa Rationale. Still, there’s gotta be a rationale for this offering, something to back up a dog and pony road show. So let me go read about Visa’s IPO a bit, BRB (be right back). Ok, there it is. Three selling points: First, the trend is Visa’s supposed friend. Americans are using more credit and debit cards, I mean using them more over the last few years, not recently. The second argument is that MasterCard is trading up since it went public back in May 2006 at a P/E of 11, and is now trading at a P/E of 27 times, above the general market’s P/E ratio or valuation. And that investors who missed out when MA went public won’t want to miss this one. And finally, three, the clincher, is that both MasterCard and Visa are supposedly insulated from credit risk by cardholders. That the banks issuing these cards take that risk.
Bottom line I would stay far away from this Visa deal as one facet of the American consumer being overly stressed is going to be much less use of credit cards, rather than more. Thus Visa and MasterCard will see the transaction fees they take their cut from decline. I would think Visa’s IPO is signaling the peak in credit card use similar to the aforementioned Blackstone Group IPO and the sale of Equity Office Partners.