Better credit in going public

CHICAGO - MasterCard plans to go public early next year, ending four decades as a private association owned by card-issuing banks.

The No 2 credit card association will issue Class A common shares to new investors through an initial public offering, giving outside shareholders 49 per cent equity and 83 per cent voting rights.

The association expects to send its 1400 bank shareholders a proxy statement in the next few months and to call a special meeting towards the end of the year.

If the transaction is approved, an IPO would take place early next year.

A Mastercard spokeswoman declined to comment on the pending offering, leaving questions about how many shares the association plans to issue, who will underwrite the offering and the timetable unanswered.

MasterCard's move to go public is the latest twist in what has been a summer of sweeping change in the US credit card industry.

Since June, three once-independent card issuers - Providian Financial, MBNA and Metris Co - have been acquired by big banks hungry for cross-selling opportunities and the cash that card issuers throw off.

The move promises to further reshape the rapidly evolving industry, putting pressure on Visa International, the other big card association, to follow suit.

Analysts said it would also create a more nimble rival for American Express.

"MasterCard's going to become more competitive and focused on growing its bottom line rather than protecting the association," said Ed Groshans, a specialty finance analyst at Fox-Pitt Kelton.

"That could be bad news for American Express."

The IPO is also part of MasterCard's effort to respond to US and European allegations that it is charging retailers unjustifiably high fees for card transactions.

According to a shareholder letter filed this week with the US Securities and Exchange Commission, MasterCard will retain US$650 million of the IPO proceeds to fund a capital increase.

- REUTERS