30 Aug

Atalyst Financial Group Arranges Private Sale of Visa Class B Shares

Principals of Atalyst Financial Group (“Atalyst”) through their broker dealer, Growth Capital Services, arranged for the acquisition/sale of Visa class B shares between two institutional investors. Since 2018, Atalyst has been actively involved in tracking the activity in Visa B shares and has arranged multiple transactions.

Prior to going public, Visa Inc. was a bank-owned cooperative. As Visa planned to go public back in 2008 management set up an interesting structure to manage the cost of ongoing litigation with merchants over card swipe fees. They created a special class of shares, the Class B shares, to ensure that new investors in its class A common stock were isolated from the cost of the litigation. As a practical matter, the common shares would have been worth less if the existing bank owners didn’t cover the costs, so it was a tradeoff for the existing bank owners.

The mechanism works in the following way. As litigation costs and expected settlement costs are funded, the shares of class B common stock are subject to dilution through an adjustment to the conversion rate of the shares of class B common stock to shares of class A common stock. This has the same economic effect on diluted class A common stock earnings per share as repurchasing the Company’s class A common stock, because it reduces the class B conversion rate and consequently the as-converted class A common stock share count. The original conversion rate on March 19, 2008 was 0.743 and the current class B common stock conversion rate as of September 17, 2019 is 1.6228 shares of class A common stock per class B common stock.

As mentioned above, the Visa B shares were issued to owner banks in the cooperative before the initial public offering. There is currently no public market for the Visa class B shares and there are strict rules regarding ownership and transferability that basically restrict ownership to companies that already own the securities. As of November 8, 2019, there were 1,397 holders of the class B common shares that held approximately 245 million shares. The Class B shares become convertible to Class A shares only when the U.S. covered litigation matters are resolved. These matters are described in full in the Visa Inc. annual report and related court filings, but they involve class-action lawsuits with merchants who allege that Visa engaged in anti-competitive practices when determining card-fee increases. These legal matters predated the 2008 initial public offering. It is unclear when these matters will be resolved. As such, there is uncertainty around the ultimate conversion ratio and conversion timing.

Historically, there have been two primary trade structures i) An unstructured outright purchase/sale of the class B shares at a discount to the converted share price reflecting the illiquidity and risk of future changes to the exchange ratio and timing or ii) A Structured purchase whereby the seller retains the risk of conversion ratio changes and pays an annual fee determined based on the converted value of the class B shares multiplied by an interest rate . The structured alternative creates a myriad of accounting and reporting issues. While once popular, we have seen few buyers or sellers interested in this structure lately.

For additional information, please contact John Gilchrist at (415) 666 2521 or john@atalyst.com.


Services provided by Atalyst are regulated by state and federal agencies. Atalyst is a licensed mortgage broker and a licensed real estate broker in Nevada and California (NMLS ID: 369363 / CAL BRE: 01980073 / NV DRE: 181750). Private securities placement services are offered by John Gilchrist (“GCS Rep“) who is also a registered representative of Growth Capital Services, Inc., a licensed broker-dealer and member of FINRA/SIPC (“GCS”), office of supervisory jurisdiction located at 582 Market Street, Suite 300, San Francisco, CA 94104. GCS and Atalyst are separate entities, and only certain securities brokered by GCS Reps are offered and sold through GCS. You can find more information about GCS and GCS Reps here and through FINRA Broker check.

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