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MasterCard IPO

Alisa Roth May 24, 2006

KAI RYSSDAL: No jumping into Vonage today at all. More like bailing out. The Internet phone company went public this morning. Shares were down almost 13 percent by the end of the day. Makes it the worst IPO in two years. It probably has the folks over at Mastercard a little uptight. That company has its public offering tomorrow. And it comes with a whole lotta hype. More than 60 million shares. At better than 40 bucks apiece. That adds up to about $2.8 billion. From New York, Marketplace’s Alisa Roth has this look at where all that money’s going.

ALISA ROTH: MasterCard is expected to use most of the money to buy out its member banks. A consortium of about 1,200 financial institutions currently owns MasterCard.

Burney Simpson edits the trade publication Card Line. He says MasterCard also expects the IPO to help resolve its legal troubles. The company faces dozens of lawsuits.

Some merchants claim the banks have colluded to charge them unfairly high prices to use MasterCard.

BURNEY SIMPSON: They need to raise money to prepare for these lawsuits in the event that they lose or they choose to settle. It could be multi-multi-billion dollar judgments against them.

It’ll also help avoid future lawsuits. The new MasterCard alone will set the prices, so banks can’t be accused of collusion. Shareholders would be responsible.The IPO will also open up the market to more competition. Aaron McPherson of Financial Insights says banks will still issue the cards to consumers. They’ll still be responsible for the risk involved, too. But both the banks and the payment networks like MasterCard will have more room to negotiate.

AARON MCPHERSON: Issuing banks will be free to shop around for the best deal they can get from the various networks. And the networks, in turn, will be free to explore deals with non-banks such as finance companies like GE Consumer Finance and, potentially, with merchants that want to issue cards.

But McPherson guesses MasterCard may use its new role as middleman to provide both issuing banks and merchants with more information about you. He says that could mean specially tailored award programs and other personalized perks.

In New York, I’m Alisa Roth for Marketplace.

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