The initial public offering (IPO), expected to take place in 2006, will see the 1,400 banks and institutions that hold controlling shares in MasterCard offered a 41% equity stake. However, they will be given Class B shares, which do not have voting rights. The majority of the business will be offered to outside investors, with the remainder to be held by a charitable foundation created by MasterCard.
The move is an audacious one and represents a complete overhaul of MasterCard's current governance structure, under which it is owned and directed by the banks and financial institutions that it serves. The current structure is perceived by some to be anti-competitive, and MasterCard hopes that an IPO will help to counter this perception.
MasterCard has been involved in its fair share of legal battles and regulatory investigations in recent years. In the US, retailers filed a case against MasterCard and Visa in June 2005, citing that transaction fees levied on merchants were too high. A similar case relating to debit card charging was settled in 2003 for $3 billion.
Equally in 2004, a US court ruled that banks previously restricted to MasterCard and Visa through card association regulations were free to offer other brands. Discover is now pursuing MasterCard and Visa for damages relating to the period of time in which it was frozen out of the market. Over in Europe, MasterCard is currently under investigation from the EU over intra-regional interchange fees while, in the UK, the OFT is investigating its domestic interchange rates.
The money raised from the IPO will certainly be useful in helping to pay for these various regulatory battles. Only time will tell whether the public offering will really help MasterCard avoid getting involved in yet more skirmishes in the future, but an increasingly transparent and open governance structure should at least leave the company less open to accusation of anti-competitive practices.
One of the more interesting questions for now, however, is whether Visa will follow suit.