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SSRN-The MasterCard IPO: Protecting the Priceless Brand by Victor Fleischer
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The MasterCard IPO: Protecting the Priceless Brand
VICTOR FLEISCHER University of Illinois College of Law
U of Colorado Law Legal Studies Research Paper No. 06-25
UCLA School of Law, Law-Econ Research Paper No. 06-08
Harvard Negotiation Law Review, 2007
Abstract:
This is a case study of the MasterCard IPO. The deal design undertakes two tasks related to the MasterCard brand: (1) managing regulatory costs (in particular, reducing its antitrust exposure) and (2) enhancing the company's image as a safe, secure brand that facilitates a middle-class consumer lifestyle. These tasks are unusual for an IPO, a transaction which is normally thought of as an exercise in managing transaction costs. Here, the legal structure of the deal not only affects brand image in the usual sense (how consumers view the Priceless brand). It also affects brand image in the sense that it affects how regulators, judges, and juries, standing in the shoes of consumers, view the firm. There is a potential positive feedback effect: increased transparency and independence from the member banks reduces antitrust exposure, which in turn protects the image of the firm as consumer-friendly, which in turn reduces the likelihood of hostile action by antitrust regulators. I focus on two unusual structural elements: 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, flipping the usual dual-class voting structure upside-down. The member banks retain effective control of the company, and they retain much of the economics of the firm. But they give away enough formal voting power to reduce their antitrust liability going forward.The charitable foundation is an example of both regulatory cost engineering and branding. The foundation will hold a large block of MasterCard stock. Elements of the foundation's structure - its function as a corporate governance and anti-takeover device, and the limits on its ability to sell MasterCard stock or engage in charitable giving for several years - suggest that genuine altruism is an ancillary goal.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.
Keywords: IPOs, branding, marketing, antitrust, interchange, charitable, foundations
Accepted Paper Series
Suggested Citation
Fleischer, Victor, "The MasterCard IPO: Protecting the Priceless Brand"
.
Harvard Negotiation Law Review, 2007 Available at SSRN: http://ssrn.com/abstract=888923
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VICTOR
FLEISCHER
(Contact Author)
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FLEISCHER
University of Illinois College of Law
504 E. Pennsylvania Avenue
Champaign
, IL
61820
United States
217-417-0541 (Phone)
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