Visa's First Annual Shareholder Meeting a Non-Event

Visa's (V) first annual shareholder meeting was held on October 14, 2008, at the San Francisco Museum of Modern Art. You would think that the very first shareholder meeting of an internationally known company would be exciting. Unfortunately, the meeting was anything but.

I spoke with a Visa employee prior to the meeting, who said that October 14, 2008, happened to be the first day that employees could sell their restricted shares. Given all the volatility in the stock market, it must have been an interesting day for Visa employees. (At least someone was experiencing interesting times.)

The food spread was small and consisted of the basics--bottled water, some drinks, and coffee. Security guards hovered around shareholders, which seemed strange--who is going to show up at 8:00AM at a shareholder to cause trouble? Perhaps the company was concerned shareholders who had bought at the 52 week high would arrive en masse, but the stock is still slightly above its pre-IPO price, so many shareholders haven't actually lost anything. It appeared that around 15 non-employee shareholders appeared for the meeting. One woman insisted she owned 4000 to 5000 shares, but didn't have a proxy statement or other proof of ownership. She was not let in. To give you an idea of the meeting's entertainment value, this incident was the highlight.

Shareholders were let into the museum's theater and saw Mr. Joseph W. Saunders, Visa's CEO, and Visa's general counsel sitting at a table in front of a blank theater screen. Eagerly awaiting some kind of presentation, many shareholders were let down when the informal portion of the meeting consisted of only ten minutes of Q&A. With 6 billion dollars in the bank, surely Visa could offer some branded trinkets (a notepad, at least) or a preview of its upcoming commercials. Alas, most of the meeting was just the CEO and CFO answering questions. I suppose for its first meeting, Visa wanted to take no risks at all, which, ironically, made it look like a small, unprofessional company instead of the international brand it is.

I asked about Visa's exposure to consumer debt. The CFO said Visa had "no debt issued to consumers." Visa is only a financial intermediary. It facilitates transactions between banks, shoppers, and retailers and receives a fee for its limited participation, called an "interchange" fee. If a customer defaults, the bank that issued the credit card is on the hook, not Visa or Mastercard (MA). For this reason, Visa has an almost fail-proof business model. Collecting a fee for safely transferring money is boring, but profitable--again, Visa has 6 billion dollars in the bank. A shareholder asked how safe this cash was, given recent financial turmoil (e.g., some money market funds had "broken the buck"). The CFO answered that of the 6 billion dollars, less than 30 million dollars were held in illiquid auction rate securities, and Visa was in the process of unwinding those positions.

I knew Visa had some debt, so I asked about Visa's debt obligations. This is where the meeting became somewhat interesting. Apparently, the day before the meeting, Visa settled litigation involving Discover Card (DFS). Some of you might remember that Discover, American Express (AXP), and a collection of retailers had sued Visa, Mastercard and several issuing banks alleging anti-trust violations. In a nutshell, retailers, especially small businesses, are concerned that Visa and Mastercard have virtual monopoly power because banks may have colluded with the two companies to exclude competitors. The plaintiffs alleged that the exclusion of Discover, American Express, and other potential competitors placed many retailers at the mercy of Visa and Mastercard, who could increase interchange fees at will. More below on the litigation:

• Anti-Trust Lawsuit
  
• Settlement
  

There may have been some truth to the allegations--we've all heard of retailers rejecting Discover and American Express cards. One of my favorite lines from Futurama has Fry trying to use an old Discover card in the future and being told, "Ooh, sorry, we don't take Discover." Also, Discover and American Express, unlike Mastercard and Visa, do have some exposure to consumer debt, perhaps to facilitate being more involved in the interchange market.

The CFO said the terms of the settlement required Visa to pay $800 million to Discover (DFS) at $200 million per year for four years. This is good news for Discover, which may see a slight but significant impact on its bottom line. (Read more on the impact of the settlement on Discover after the jump.)

I asked whether the DOJ or FTC was involved in the settlement. The CEO answered that neither agency was involved, which means government intervention may still occur. I asked whether any "non-financial concessions" were made as part of the settlement agreements. The CEO answered with a resounding, "No."

After the meeting, the CEO Saunders was gracious enough to grant me a picture with him. Mr. Saunders seems like a genuinely decent person and lacks any trace of arrogance. Another shareholder said he reminded her of "bread and butter America and the Midwest," and it's an indication of the kind of respect Mr. Saunders inspires. I have no idea whether Mr. Saunders is from the Midwest, but these days, companies could use more CEOs who exude honesty and throwback values.

Unfortunately, the same cannot be said of Visa's Investor Relations. After I took the picture with the CEO, a woman from Investor Relations immediately approached me, telling me repeatedly not to publish the picture. Then, she took out out a piece of paper and demanded to know my name. After telling her she was behaving rudely, I gave her my first name and this blog's website address. The next day, someone did a search on my blog for "Visa." Why is Investor Relations so paranoid about a picture? One expects more confidence from a company that is supposed to have solid international standing.

To characterize my experience with Investor Relations, I was going to borrow Chuck Thompson’s line about being “blocked at every turn by an army of protective minions reminiscent of David Spade as Dick Clark’s personal assistant on Saturday Night Live”; however, the analogy wouldn't be exactly applicable, because the Investor Relations employee tried to block me after the picture was taken, as if my camera somehow had a way of morphing the CEO into Satan himself.

So, one last bit of advice to Visa: leave the Wehrmacht, er, overly nervous employees, at home next time. Shareholders, being owners, should be treated like friends, absent erratic or strange behavior. Attempts to block them from gaining access to company officers make a company look insecure, weak, and unprofessional. Let’s hope a company that relies on its good public image will teach its employees the delicate art of handling admirers.

There was some upside to being accosted. Investor Relations' misplaced energy produced an epiphany: Visa's greatest strength--its ease of making money without taking on risk--is also its greatest weakness. Its business model is so simple, Visa employees and officers might feel compelled to overreach out of sheer boredom. Privately, another shareholder complained that Visa was holding too much cash and should return some of it to shareholders in the form of an increased or special dividend. Historically, companies tend to make bad decisions and acquisitions when they have too much cash. Symantec (SYMC) is one example of this phenomenon--just review its acquisitions of Axent and Veritas. Let's hope that Visa's CEO and top brass really are "bread and butter" American types. If not, Visa could be in for a wild ride.

To sum up, the first Visa shareholder meeting was a non-event. The CEO, CFO, and general counsel shined, even if no one else did. Next time, if Visa has a video or pays more attention to the informal part of its presentation, shareholders might feel more vindicated for getting up at 6AM to catch the train to San Francisco. Another shareholder gently admonished Visa for not introducing its Board of Directors, as is customary at shareholder meetings. The CEO indicated he appreciated the advice and would remember to do it next year. Because it's Visa's first year being public, Visa gets a pass for having a dull, ordinary meeting. In the future, however, shareholders should hope that Visa settles into its new public skin and acts more confident.

Disclosure: As of October 17, 2008, I own around 20 shares of Visa (V); between 90 and 100 shares of Discover (DFS); and no Mastercard (MA) shares.

Comments

[Art Rimbaud:]

Wow, you own a whole 20 shares! Damn dude, it's time to retire.

Actually, your sense of entitlement for owning all those share is pretty typical, so you're in good company complaining that VISA owes you unfettered executive access, an exciting presentation and valuable trinkets.

Too bad I own several multiples of your shares and feel they should have thrown you out on your a$$ for wasting everyone's time...

2008 Oct 19 06:37 PM

[Urbane Gori...:]

Interesting first person account of the meeting.... Liked your comments on the extra cash and the caution that they don't go right out and buy something ..(Course, they could put it on their Visa card and get beaucoup miles.. ) Not sure what they would buy ... Maybe a Diebold style company (after the election) or some kind of online transaction function... Although after just resolving their suit with Discover etal, they'd probably be gun shy about buying anything that could be construed as favoring their company.

jegan ;-)

2008 Oct 19 06:52 PM

[Urbane Gori...:]

You know.... I just had a look at Diebold on Yahoo Finance. $1.7 Billion market cap with very acceptable numbers, positive growth and earnings ... And Visa with $6 Billion it just doesn't know what to do with. Hmmmm... Looks like a fit to me and affordable now that Diebold is down to $26.90 with it's yearly range between $23 and $42. If I were Visa, I'd be looking!

jegan ;-)

2008 Oct 19 07:00 PM

[Matthew Rafat:]

Art Rimbaud: the annual shareholder is the one time ordinary investors can directly question a company and gain insight into their culture. Companies, like countries, have their own culture. I favor open, humble corporate cultures, because the more open a company is to criticism, the less likely it is to end up like Enron (just view Skilling's response to an analyst in the documentary, _The Smartest Guys in the Room_). Your comment on the number of shares I own is irrelevant, because it is precisely a company's attitude towards small investors that indicates how open it is. In addition, your comment is based on the premise is that public companies should only pay attention to institutional investors or large investors and that small investors have nothing to add. Your premise is incorrect and fails to recognize the importance of Regulation FD and the role of the small investor in keeping companies honest and responsive to the public. Recent events should demonstrate what happens when only large players are involved in decisionmaking, or when large players are insulated from public feedback.

2008 Oct 20 12:50 AM

[pepenik99:]

Hey, what a great article. But you can't really blame V administration as they seem to not know how to do a shareholder meeting just yet.
I certainly hope that you put enough umpph into them to let them realize that "yes" we do want a share of the pie in the way of a special dividend or the like.........after all we own em....

2008 Oct 20 09:51 AM

[kirkf:]

I think the 6 billion is being held for an acquisition of Visa Europe and a share buyback in the 1st quarter of 2009.

I'm surprised that neither of these was mentioned at the meeting. Perhaps further details will be released during the conference call on October 29th.

2008 Oct 20 07:34 PM

[svosavvy:]

Thanks for the article

I am glad you received the access you did despite owning a relatively small position. I would like to think that spirit of taking a position is a powerful force in the macro scheme. Consider this, possibly if we got joe six pack to buy a gov't backed bond instead of buying scratch off tickets at the mini mart we would have a powerful fist comprised of many weak hands. Anyway, that's way off point. I liked that you got some color regarding the discover settlement. Also, I would add my 2 cents and say no to "diworsification" with the free cash. I am long a small position on V I believe the downside imo is a $35 share price sometime in the next year to that I would be a buyer. They do carry a small p/e premium which is hard to maintain in real hard times. I think visa should do a small buyback with some of their cash, I think that would go far. This is a grower we don't buy this for the dividend after all, I wonder why they bothered with a dividend in the first place.

2008 Oct 21 11:44 AM

[looking:]

I got hammered on Visa having bought quite a bit of it in early May. But my losses are only on paper as I haven't yet sold any. It will come back over time. I just wish I could buy more right now, but I really can't. A while back I read that Visa was planning a big buyback in October. Doing so real soon would show potential investors confidence in Visa. I believe that too many investors are spooked because of all the credit defaults etc... but Visa doesn't issue or take on the risks involved with credit. I can't say that often enough because I still read well intentioned bad advice on Visa and Master Card by "analysts" who lump Visa and MC in with Discover and American Express. Two weeks ago someone authored an article on a blog writing that Visa was gonna lose a fortune because of people defaulting on their credit cards. Fortunately, someone wrote back rather quickly that Visa doesn't assume credit risk and the author acknowledged his error. I still have to wonder how many other articles are out there categorizing V and MC with D and AE.

The time has come for Visa and Master Card to use some of their advertising dollars to promote their stocks to investors just as they promote their cards to consumers. And they should start by telling potential investors they don't take on credit risk, the banks do. I think their problem is misinformation and misunderstandings more so than the economy.

2008 Oct 24 01:01 PM