Visa Stock Falls After Exchange Offer Announcement

Visa’s
motto is “unlocking opportunity for everyone,” but an attempt to unlock value for certain holders of its stock caused its share price to fall on Thursday—and created a buying opportunity.

Background

Visa (ticker: V) has an odd share structure with Class A shares, nontraded B shares held by US banks, and C shares owned by foreign banks.

The Exchange Offer

Visa proposes allowing banks to exchange half their B shares for C shares and the other half for newly created B-2 shares.

• The C shares could be sold according to a preset schedule.
• The B-2 shares would resemble the original B shares but have double the responsibility for loss coverage.
• All shareholders will vote on the proposal in the future.

Benefits of the Proposal

Visa claims that the proposal offers benefits to all investors:

• Class A and C investors would continue to have financial protection.
• Class B stockholders would have an option for near-term liquidity and potential better regulatory capital treatment.

Market Reaction

Visa stock fell 2.6% on the first trading day after the exchange offer was announced, its largest drop since May.

Investors are concerned about the potential for more stock coming to the market.

Jefferies analyst Trevor Williams estimates an additional $350 million of daily volume would be added to the current $1 billion.

However, the decline in stock price could be seen as a buying opportunity for investors.

Conclusion

Despite the market reaction, Visa shareholders may find the arrangement favorable as it offers a short-term overhang instead of a longer-term one.

Visa’s fundamentals remain strong, and the stock has gained about 36% since a previous recommendation to buy shares.

Ultimately, the decline presents another opportunity for investors to buy shares on the dip.

Write to Ben Levisohn at [email protected]