MasterCard IPO Priced at $39,

Under Expectations; Set to Debut

Wall Street Journal

By STEVE GELSI, LYNN COWAN and THOMAS DERPINGHAUS

May 25, 2006; Page C4

As IPOs go, the pricing was not quite a gold card.

The much-anticipated stock offering of MasterCard International Inc. was priced late Wednesday at $39 a share, below the anticipated range of $40-$43. The initial public offering is set to begin trading Thursday on the New York Stock Exchange under the symbol MA.

MasterCard's $2.4 billion IPO was priced on the day the Internet phone service provider Vonage Holdings Corp. experienced a 12.6% decline on its first day of trading, the worst performance for a new stock in nearly two years. But with its longer track record and growing profits, MasterCard might still fare better than Vonage in aftermarket trading, some analysts say. (See related article.)

While the MasterCard price was lower than anticipated, the stock-market debut Thursday is still the biggest U.S. IPO since Genworth Financial Inc. raised $2.9 billion for its deal in May 2004.

MasterCard's IPO comes as the 40-year-old credit-card firm completes its transition from a membership association jointly owned by banks to a public company.

Listing on the NYSE is "a major milestone for MasterCard," said the company's president and chief executive, Robert W. Selander.

There had been some uncertainty among investors over how MasterCard would perform after its IPO. Although the company has a strong brand name and is expected to benefit from continuing consumer credit card reliance, it faces a host of legal liabilities that can't yet be quantified. Its legal woes range from regulatory scrutiny of its interchange fees -- the fees that banks charge merchants for credit-card processing -- to lawsuits alleging deceptive currency-conversion practices.

Still, Francis Gaskins of research firm IPO Desktop said: "It appears that investors can't go wrong on a company this big and branded, even though there are significant risks to its growth."

Goldman Sachs Group Inc., Citigroup Inc. and HSBC Holdings PLC are underwriting the IPO.

Mr. Gaskins noted that MasterCard faces growth challenges in the U.S. credit-card business, with continuing competition from American Express Co., Visa USA Inc. and others as large companies such as Bank of America Corp., Citibank and HSBC and General Electric Co. start issuing credit cards from American Express and Discover.

MasterCard reported net income of $126.7 million in the first quarter, up nearly 36%. Revenue climbed 12% to $738.5 million.

As part of its IPO, MasterCard will dissolve its current board, and recently named six new directors to join Chief Executive Robert Selander and Norman McLuskie, chairman of Royal Bank of Scotland Group, on the board.

The new directors are Manoel Amorim of Telefonica Brazil; David Carlucci of IMS Health Inc.; Richard "Rick" Haythornthwaite of Star Capital Partners; Marc Olivie of Agfa-Gevaert Group; Mark Schwartz, formerly of Soros Fund Management LLC; and Edward Suning Tian of China Netcom Group.

MasterCard is going public as the credit-card industry plays up its role as a cash substitute in transactions, instead of its traditional business of lending money. The company and larger rival Visa control roughly 75% of total industrywide card volume, according to a study by Piper Jaffray.

In 2005, U.S. credit-card transactions grew by 15% and total cards in force increased by 8.6%.

Write to Steve Gelsi at Steven.Gelsi@dowjones.com, Lynn Cowan at lynn.cowan@dowjones.com and Thomas Derpinghaus at thomas.derpinghaus@dowjones.com