The European banks that own Visa Europe are reportedly considering selling the entity to U.S.-based Visa Inc. to clear the way for an eventual rival system in Europe.
According to a March 19 Wall Street Journal report citing anonymous sources, the Visa Europe board will determine whether to exercise its option to sell the business to its U.S. counterpart at a meeting in April.
The Journal report indicated a decision might not be made at that time. However, the planning for such a sale is in its advanced stages, with a potential sale being valued at about $3 billion, the article states.
Visa Europe operates as a business supporting the payments industry, but it does not operate as a bank or a card issuer. Most of its services center on the continent's debit-card industry, of which Visa Europe claims accounts for 70% of the transactions in Europe.
Visa Inc., on the other hand, is a publicly traded company that receives royalties from Europe as Visa Europe is a minority stockholder in the company.
The option of merging Visa Inc. back with Visa Europe has always been on the table, says Zil Bareisis, a London-based senior analyst for research firm Celent.
However, setting up a rival system in Europe would be an extremely difficult thing to do, Bareisis adds.
"There have been multiple attempts to create a 'third card scheme' in Europe, but none of them have succeeded so far," Bareisis says.
In a Celent report last year, Bareisis suggested it was "time to move on" from that dream.
"I would argue that given the current economic climate and the latest developments in payments, the European banks would have better uses for the proceeds … than to try and set-up an alternative cards network," Bareisis says.
Visa Europe may be considering a separate scheme that "sits on top of the Visa network" but even that approach remains unlikely, says Gareth Lodge, also a London-based industry analyst with Celent.
When Visa Inc. revamped its corporate structure in 2007 in preparation for its initial public offering in 2008, Visa Europe became a separate entity. Visa Europe was the only one of five operating units that was not rolled into Visa Inc. at that time.
As part of the Visa Inc. reorganization, the company granted Visa Europe "a perpetual put option," which if exercised, will require Visa to purchase all of the outstanding shares of capital stock of Visa Europe from its members, according to Visa Inc. annual reports.
Visa Inc. would be required to purchase the shares of Visa Europe no later than 285 days after the Visa Europe board exercised the put option.
"In some ways, some of this isn't new news as there was a put and hold in place when they separated originally, which is about to come due," Lodge says. "Any responsible shareholder has a duty to consider all the options."
Visa Inc.'s 2012 annual report outlines the stock-price liability the company potentially faces through Visa Europe members' put option to sell shares to Visa Inc.
Even though the put option includes various cost adjustments and negotiations, as well as an arbitration mechanism if the two sides cannot agree on a share price, Visa Inc. describes the unification of the two entities as a risk for shareholders.
"The fair value of the put option does not represent the actual purchase price that the company may be required to pay if the option is exercised, which could be several billion dollars or more," the annual report states.
Visa Inc. did not respond to inquiries by deadline, and a Visa Europe spokesperson when contacted said the company "will not comment on speculation about Visa Europe board actions."