March 08, 2006
MasterCard IPO -- Protecting the Priceless Brand
Posted by Victor Fleischer

 

I've just posted a draft of my case study of the MasterCard IPO.  It's a neat deal structure.

It's mainly a story about managing antitrust liability, but also a bit about branding.  I focus on two unusual features: a dual-class voting structure, and the creation of a charitable foundation.

The dual-class voting structure is unusual because the insiders (the member banks) retain more economics than votes.   Usually it's the other way around.  The reason?  Antitrust.  To reduce antitrust exposure, the member banks need to get rid of their voting control.  But they can't just dump all their shares, as that would depress the price.  The solution:  the reverse-dual class structure. 

Better yet, the member banks retain some indirect control through the charitable foundation, which becomes a long-term shareholder with incentives roughly aligned with the member banks.  Coupled with limits on the foundation's ability to sell its MasterCard stock or engage in charitable giving for several years - one suspects that genuine altruism is an ancillary goal.  (Shocking, I know.) 

The foundation may also enhance the brand image of the company. But there is a disconnect between the MasterCard foundation’s purported philanthropic goals and its low levels of anticipated charitable giving. In sum, the utility of the charitable foundation as a regulatory arbitrage tool is clear; its ability to improve the welfare of anyone other than the member banks is unproven.

I've heard that establishing a charitable foundation as a long-term shareholder is a common move in Europe.  Anyone know of any good sources on that? 

On balance I think it's a brilliant and innovative deal design, and after studying the deal closely I'm more optimistic about the value for both pre-IPO and post-IPO shareholders (tho less optimistic about the branding impact). 

Anyway, if you're interested, you can read it here. It's delightfully short (13 pages).  In April, I'll present it at a conference hosted by the Harvard Negotiation Law Review.  More details on that later.

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