Saturday, May 20, 2006

"Is MasterCard IPO Really a Bargain?" (WSJ)

The Wall Street Journal on May 20th (subscription required) reported in its "Breaking Views" column that "regulatory and legal clouds are potential downsides [to the IPO]."

Additionally, the WSJ opined that "Far more worrying is that MasterCard's revenue model is under threat. Regulators in Europe are claiming its fees should be much lower. Australia's regulators already have forced a 40% fee cut. In addition, the company faces about 40 class-action lawsuits from U.S. retailers. They claim that a cartel of credit-card providers and banks colluded to set excessive fees. In a settlement with Wal-Mart three years ago, MasterCard stumped up $1 billion over 10 years. That's almost 20% of the company's likely market value.

If MasterCard escapes from under these dark regulatory and legal clouds, it might provide an outstanding investment opportunity. But the costs of the lawsuits are unfathomable, and the regulatory filings for the IPO provide little guidance. These are risks many investors won't accept -- but for everyone else, there's MasterCard."

[source: From the WSJ, May 20, page B16]