Visa Falls on Share Exchange Proposal. It’s an Opportunity to Buy the Stock.

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The slogan is “opening opportunity for everyone”, but an attempt to open up the price for some shareholders caused the share price to drop on Thursday – and created a buying opportunity.

The story is, well, complicated. Visa (ticker: V), which went public in 2008, has an unusual share structure. Your standard, run-of-the-mill class has A shares, but not commercial B shares, owned by American banks, and C shares, owned by foreign banks.

The B shares were created during Visa’s IPO when the company and the banks that issued Visa-related credit cards conspired to raise transaction costs and bail out shareholders in a 2005 lawsuit. Company, liable for damages. According to the original documents, the shares cannot be sold until the claims in the lawsuit are settled.

But Visa thinks now is a good time to change the deal. The B shares were They were worth a total of $96 billion as of Aug. 31, the company said, up from $8 billion when they were issued, and 90% of the 2005 claims have now been settled, Visa said. The rest will cost between $1.4 billion and $4 billion, with Visa still left with $1.6 billion in litigation. It seems like a good time to start learning how to sell B shares.

Visa’s proposal would allow the banks to exchange half of their B shares for C shares and the other half for newly created B-2 shares. C shares can be sold in advance, while B-2 shares are similar to original B shares, except that liability for loss coverage is doubled. The proposal will be put to a vote by all shareholders at some future date.

In a call explaining the proposal, Visa laid out reasons why all investors should like the deal. Class A and Class C investors will continue to receive the financial protection that is provided in the current situation, and will have a better understanding of how Class B shares will sell over time. The proposed “[mitigate] Visa CEO Ryan McInerney said on the call. “Class B shareholders will have an alternative option for immediate liquidity and better regulatory capital treatment.”

It seems logical, but the market is worried anyway. Visa shares fell 2.6% on Thursday, the first trading day after the exchange offer was announced, the biggest drop since May. Investors are clearly worried that the discount will bring more stock to the market. Jefferies analyst Trevor Williams estimated that an additional $350 million, or daily volume, would be added to the current $1 billion, an amount he called significant.

If the proposal is approved, “we expect investors to experience some near-term bullishness as there is a concerted selling pressure in the legs,” he wrote.

But Visa shareholders should eventually find the arrangement to their liking. It offers a short-term overlap in place of a long-term one, but the basics of the visa have not changed. When BaronWe recommended buying the stock 11 months ago, and we saw that the company was still generating free cash flow, carrying no debt, and compounding double-digit sales and earnings. It’s no longer penalizing—the stock has gained about 36 percent since we picked it—but the fundamentals remain the same.

Ultimately, the decline is another opportunity for investors to buy stocks if they are very interested.

Write Ben Levisohn at [email protected]