MasterCard Planning to Go Public in 2006

Credit card company MasterCard Inc. unveiled plans Wednesday for an initial public stock offering to help reshape its business during a time of unprecedented competitive and legal challenges mounted by rivals.

The Purchase, N.Y., company is controlled by 1,400 financial institutions that issue MasterCard-branded products. The IPO is expected in next year’s first quarter and will transfer a 49% equity stake and voting control into the hands of investors.

The move comes as MasterCard and larger rival Visa USA Inc. contend with a court decision that allows member banks to issue competing card brands of companies such as American Express Co. and Discover Financial Services Inc., a unit of Morgan Stanley. This opened the door for those companies to file lawsuits against the credit card giants seeking unspecified damages stemming from anti-competitive practices.

An unfavorable verdict could cost MasterCard and Visa hundreds of millions of dollars, because suits filed under antitrust laws can seek triple damages. MasterCard Chairman Baldomero Falcones and Chief Executive Robert W. Selander said in a letter to member banks that the IPO was in part formulated to address these legal hurdles.

“We will retain $650 million of the IPO proceeds to fund a capital increase, the economic impact of which will be borne by our U.S. shareholders,” the letter said. “Along with the proposed structural changes, we believe these resources will place us in position to defend our interests in the legal and regulatory arena.”

MasterCard said in a filing with the Securities and Exchange Commission that a proxy statement to be filed in a few weeks would contain more details about the IPO, which shareholders would be asked to vote on by the end of the year. Any public offering would also require regulatory approval.

A spokeswoman for MasterCard declined to comment, citing a standard quiet period imposed by regulators.