Visa Europe thinking of selling to Visa global

The banks used to own and run Visa in order to link banks with different card issuances. When it listed in 2008 the banks each got a portion of the company. Some of the banks sold, some of them held on to them. The ones that held on have obviously done very well as the share price has gone from the listing price of around $64 to $156 today. Since the reorganisation in 2007 Visa and Visa Europe have operated independently because the members (banks) in Europe decided to keep it as a non-profit association and pay Visa Inc royalties for their services.


Why am I telling you this? Because when the agreement was structured the European members were granted a perpetual put option which allows them to sell at some stage. The WSJ has reported that the Visa Europe board will discuss in April the option of selling to US based Visa Inc. The price will be determined by a formula within the put option based on forward price earnings of the business and other such ratios.


The sale would raise billions of much needed Euros for the 3700 struggling members and would also be beneficial for the purchasing parent company. They can now focus on running this massive region for profit as opposed to relying on just the royalties. There will be lots of potential synergies and Visa's network will just get bigger. It is one of those businesses where the bigger your network, the faster you can grow. The bigger you are the more merchants will be forced to accept your cards otherwise they will lose business. When that happens the more valuable you become to the client because your service is more accessible and the client will have preference for your brand over others.


That is why we have chosen Visa because they are the biggest transaction processor amongst the lot. Of course the business model is fantastic. I am told that transactions in Italy are still predominantly cash so as to avoid taxes but the government is now forcing electronic payments on their citizens in order to monitor the movement of money. Banks are doing the same, incentivizing electronic payments because moving cash around is risky. It is a no brainer.


Whether the deal will go through or not is speculation at this stage. But having announced a $2.9bn share buyback and having 0 debt, I am confident they will have the capital to finance a deal. We continue to add to this stock even though it has done well recently, the potential going forward is huge.