The world's second largest credit card company, Mastercard, Inc. (NYSE: MA) just debuted their IPO yesterday on the New York Stock Exchange. It opened at $39, jumped to $42 within minutes, and finally glided smoothly to $46 by market close. This has been the biggest 2006 IPO to date, underwritten by Citigroup and Goldman Sachs, raising some $2.39 billion on some 61.52 million shares (soundly beating Google's (NASDAQ: GOOG) IPO of $1.7 billion in 2004).
This sounds impressive, but the size of the IPO came short when shares were originally expected to issue at a range of $40 to $43 a share (mainly due to investors' concern over MasterCard's legal and regulatory problems). The funds raised from this equities issuance will, as most expect, be used for i) redemption of the Company's Class B shares, and ii) to fund a war chest to protect itself from mounting legal troubles.
What legal troubles you ask? Legal troubles that MasterCard and Visa face regarding price-fixing on interchange fees (where retailers pay the associations to process credit and debit card transactions). Additionally, the third and fourth largest credit card companies namely American Express and Discover Financial, have joined together to sue them for anticompetitive practices that blocked member banks from issuing cards on their rival networks.
Mastercard's most recent earnings posted $126.7 million in profit for the quarter, 36% higher from the year-earlier period. They also reported a 12% increase in revenue, to $738.5 million during the quarter.