The IPO Buzz: Visa Steps on the Gas

 
It’s hot. Only the hot deals get accelerated.
 
That’s even more remarkable, given stock market conditions. One of the three major stock market indexes is in bear market territory, down 20 percent or more from a previous high, and the other two are in what is called a correction, down 10 percent or more.
 
Note: the Nasdaq Composite Index closed Friday, March 14, at 22,212.49 DOWN 22.6 percent from 2,859.12, its previous high set on Oct. 31, 2007. The Dow Jones Industrial Average closed at 11,951.09, DOWN 15.6 percent from 14,164.53, its all-time closing high on Oct. 9, and the Standard & Poor’s 500 Index closed at 1,288.14, DOWN 17.7 percent from 1,565.16, its record closing high on Oct. 9.
 
Timing is Everything
Worth noting: The Visa deal is set to be priced on the evening of Tuesday, March 18, which is the day after St. Patrick’s Day.
 
On the evening of March 16, the day ahead of St. Patrick’s Day, something unusual happened. JPMorgan Chase & Co. (NYSE: JPM) got the green light to buy Bear Stearns (NYSE: BSC), the one-time bond trading powerhouse and securities clearing giant, for what worked out to $2 a share. The Federal Reserve made an emergency cut in the discount rate — the rate it charges for direct bank loans –- to 3.25 percent from 3.50 percent.
 
On Tuesday, the Federal Open Market Committee is scheduled to meet. The interest-rate futures market on Friday reflected a growing chance that the Fed will cut the fed funds rate target to 2.0 percent from 3.0 percent.
 
A Bleak Winter
This year’s IPO production has been sparse. Bankers have priced 10 deals that raised $987 million, according to the U.S. Securities and Exchange Commission’s filings. But their aftermarket performances haven’t been all that poor: Five are up and five are down with an average gain of 3.89 percent. At Friday’s close, the Nasdaq Composite Index was down 16.6 percent for the year.
 
Interestingly enough, this time last year, neither the stock market nor the IPO production line was rocking. On March 16, 2007, bankers had priced 34 IPOs -– 24 more than this year. There were 21 winners, 13 losers and the average gain was 8.28 percent. The Nasdaq Composite Index was DOWN 1.77 percent for the year.
 
By the end of 2007, bankers had priced 212 IPOs. On Dec. 31, a total of 114 were winners, 96 were losers and two were unchanged, with the average gain 17.4 percent. The Nasdaq Composite Index was UP 10.7 percent for the year.
 
Visa’s Vital Statistics
And now comes the Visa (NYSE: V proposed) deal.
 
Here’s what we already know:
  • Visa will offer 406 million shares with a price range of $37 to $42 each to raise $16 billion -– the mid-point of the price range. That’ll top the previous holder of the title “largest U.S. IPO” — AT&T Wireless. On April 27, 2000, AT&T Wireless offered 360 million shares at $25.50 each to raise $10.6 billion. AT&T Wireless closed its opening day at $31.69, UP 7.4 percent from its initial offering price. On Feb. 17, 2004, Cingular acquired AT&T Wireless for $15 per share in cash, DOWN 41.1 percent from its initial offering price.
  • In a very unusual move, Visa’s pricing date was accelerated. Nobody can remember the last time that this happened in the IPO market.
  • And everybody is looking at Visa’s competitor, MasterCard (NYSE: MA). MasterCard’s stock is up over four times since the company went public on May 24, 2006, and the stock market had a great run. That day the Nasdaq Composite closed at 2,169 on its way to a closing high at 2,859 by Oct. 31, 2007. MasterCard offered 61.5 million shares at $39 each to raise $2.4 billion. It closed its opening day at $46 per share, UP 18 percent from its IPO price. On Friday, March 14, 2008, MasterCard closed at $208.65 — UP an astounding 435 percent from its initial offering price.
  • One of Visa’s joint-lead managers reportedly gave out allocations a week ahead of the pricing date. Since allocations are usually given out until just ahead of the pricing date, this sparked a flurry of rumors that the deal was coming to market a week early.
Here are a couple of tidbits from the rumor mill:
  • The allocations were given out with an eyedropper, which indicates huge demand.
  • And there is talk that the deal could be priced from $45 to $50 per share. You’ll have to keep an eye open at the SEC’s filing window for an S/1A amendment that happens ahead of its pricing.
Who knows where the blockbuster Visa IPO will trade in the aftermarket? (A blockbuster is any IPO that raises $1 billion or more.)In terms of scoring a good opening-day pop, history is on Visa’s side.
 
In its lifetime, the U.S. IPO calendar has produced only 76 blockbusters, or new issues of $1 billion and more. Of that number, 59 closed their opening day above their initial offering prices, 15 below and two were unchanged. The average gain for all 76 blockbusters was 14.8 percent.
 
Should the Visa IPO produce an “average” opening–day gain for a blockbuster, then its shares could trade around $42.48 (if Visa is priced at $37, the low end of its current price range) to $48.22 (if it’s priced at $42, the high end of its current price range).
 
But this is Wall Street. Anything can happen.