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On Wednesday August 31 2005, MasterCard announced plans to become a public company. They are overhauling the ownership structure under which they have operated for the past several decades. This comes at a time when credit card competition is getting particularly stiff and the face of the market is changing rapidly.
In this massive overhaul, almost half of the company, around 49%, will be offered to outside investors, who will carry almost 85% of the voting rights. The 1,400 banks and institutions that are currently shareholders of control in MasterCard will walk away with a combined 41% interest in the company, but they will be downgraded to B class shares and will not have the rights to make voting decisions. They will, however, take place in the voting to choose a majority of independent directors, selected from a group of financial institutions worldwide. These elections will take place later in 2005.
MasterCard calls this float the next big step in their evolution. It is expected to occur by first quarter of 2006. A ruling by the Supreme Court last year allowed banks that were previously only able to offer MasterCard and Visa the right to offer competing cards as well. This opened the door for stiffer competition from the likes of Discover and American Express. Discover and Morgan Stanley are in process on a lawsuit to seek damages for the previous freeze-out, which they claim was a monopolizing process. If they win, the lawsuit could force a pay out of millions upon millions of dollars.
MasterCard is conducting this ownership overhaul to stay at pace with the changing market and to avoid any accusations of monopolization or other poor conduct. They say that a broader range of share ownership should help address any perceived conflicts of interest in the way MasterCard operates.
MasterCard is also planning to establish a charitable organization during the overhaul. This organization will hold 10% of the business and 17% of voting rights.
For more information about MasterCard, visit their web site at: http://www.mastercard.com/us/gateway.html
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