What happened
On Thursday, the usually mighty payment card giant Visa (V -2.55%) was the second worst performing stock in the S&P 500 index. It lost almost 2.6% of its value on news that the status of a large pile of non-publicly traded shares could soon be changed.
So what?
Visa announced that it had started a process to allow its Class B shareholders to freely sell some of their shares.
Class A shares are the ones that are publicly traded, while Class B and C shares are not. The latter are mainly held by financial institutions that work with Visa.
In the company’s own words, the Class B shares were created “to protect Class A and Class C shareholders from certain pre-IPO litigation referred to as U.S. Covered Litigation”.
This refers to potential claims for damages by merchants arising from Visa’s pre-IPO history as a company jointly owned by these banks. Visa effectively made the banks responsible for any payouts arising from these claims. Initially, the shares were not to be sold until all litigation had been resolved.
According to the company, approximately 90% of the payment volume and interchange fee disputes from that period have been resolved.
The company’s initial public offering (IPO) took place in 2008, with the three-class structure designed in advance of the listing.
What happens now?
Visa said it will discuss the potential conversion with its shareholders in the coming weeks or months. If there is a positive response to the company’s plan, it intends to proceed with a shareholder vote on the matter.
The Class B shares are currently worth approximately $96 billion. The market capitalisation of the Class A shares traded on the New York Stock Exchange is currently over $502 billion.
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