Thursday, October 13, 2005

Facing a Multi-Billion Dollar Antitrust Litigation, MasterCard Plans IPO (commentary

MasterCard Inc., the credit card giant owned by 1,400 financial instructions stands accused of significant antitrust violations for its anticompetitive interchange fees charged to merchants.

So, what do they do

MasterCard's financial Imagineers abandon logic and announce plans to raise nearly $2.5 billion through an initial public offering of stock. This might give pause to the investment community, but as lead plaintiff in the credit card interchange antitrust litigation, we are winking. Actually, we are wiping our eyes in disbelief. Faced with a potential multi-billion dollar liability and a direct assault on much of its revenues, the charge card marketing association's owners are banking that the public won't notice.

By selling out to public investors would MasterCard (and Visa if it also files for an IPO) have a more questionable motive? The antitrust litigation claims that the card associations are in collusion with its owners -- the member banks on its board which unilaterally set the interchange fees. While a new board representation might claim to finally not be conspiring to fix prices, the fact is that the damage has already been done. For more than a decade and hundreds of billions of dollars, the credit card associations have earned huge profits at the expense of merchants and consumers.

How can the closely held credit card cooperative explain that the use of proceeds will help fund and expand its global reach, yet not address the interchange litigation?

And, the banks which own the Purchase, NY company are applauding this planned stock offering. Of course they are. Are the cheers due to identifying an exit strategy to limit their liability, or are they granting others to take ownership of a threatened business model? Either way, the financial institutions get rich by attempting to cash out part of their significant investment in MasterCard, which along with Visa and member banks are all under public scrutiny for being accused of illegal price-fixing.

The question is whether Wall Street and Goldman Sachs Group, which is managing the offering, have come to terms with this potential multi-billion dollar legal liability?

Perhaps not.

Financial Times reporter, David Wrighton explained that MasterCard wants to become an "independent public company in an attempt to distance its bank owners from regulatory and legal threats."

Still, MasterCard's
website has not issued an update to its merchant lawsuit page since 2003! But, as of today, Sept 19, 2005, the company does advise that "as events develop, MasterCard will add updates and statements about the issues raised by the Merchant lawsuit."

We wonder what they are waiting for?