Visa Inc. adopted an unconventional share-class structure when it went public, and the company said Wednesday that it will discuss with shareholders whether to amend that as a means of resolving a potential overhang on the stock.
The payment-technology company, which was a bank-owned cooperative before going public in 2008, currently has three classes of stock. Visa’s
A shares are owned by the public, B shares are owned by U.S. banks, and C shares are held by foreign banks.
At the time of Visa’s initial public offering, the company faced litigation from merchants and sought to insulate future shareholders from loss claims related to merchant suits that dated back to Visa’s time being owned by the banks. The Class B shares made it so Visa’s former bank owners would be responsible for litigation claims.
While Visa isn’t done resolving claims related to the 2005 merchant suit, it’s settled claims corresponding to about 90% of the associated payment volume at the time. Originally, Visa established that U.S. banks would be able to sell their Class B shares when all litigation was complete, but the company says it will discuss with shareholders an amendment plan to Visa’s certificate of incorporation.
If that plan goes forward, Visa ultimately would let all shareholders vote on whether to let the banks unload some of their Class B shares before all litigation is resolved.
Through the potential exchange offer, banks would be able to swap half of their current Class B shares for Class C shares. They would be able to sell Class C shares in accordance with a staggered lock-up window, while continuing to own Class B stock, which would be renamed Class B-2 stock for participants in the offer. Existing Class B stock would be dubbed B-1 shares.
“[T]his program would enhance certainty for all stockholders by mitigating potential overhang risk,” Visa said in a blog post. With the current structure, Class B shares would all “become freely sellable in the public market” after the last of the litigation was resolved, but the proposed amendment “prudently spaces out the release of the Class B shares for the benefit of all common stockholders,” the company said.
Were banks to exchange some Class B stock for Class C stock, they would be able to sell up to a third within the first 45 days, up to two-thirds within the first 90 days, and up to the full amount after that.
Visa added that it would require that all banks participating in the exchange offer to sign an agreement saying that they would cover any additional loss litigation in the event the remaining Class B shares weren’t enough to satisfy future claims.
Shares of Visa in general have risen substantially since the 2008 IPO, and the Class B shares are now worth about $96 billion today, up from $8 billion at the outset.
Visa said in its blog post that given the stock appreciation and progress with the merchant-suit resolution, “now is the appropriate time” for shareholders to consider allowing for the exchange offer.
The amendment would allow for the possibility of three additional exchange offers down the line. These each could occur more than 12 months after the prior one and after a further 50% reduction of the interchange at issue in the longstanding merchant claims.
It’s unclear when all of the merchant litigation will be resolved. Visa’s announcement Wednesday came after a damages-class settlement in the 2005 suit became final last month, and a court is supervising that distribution. However, some merchants opted out of the class-action component, and while Visa has settled with many of those, some of the claims remain.