Visa's board has greenlit a proposal to allow shareholders to vote on a share exchange program that could alter the way the card network addresses outstanding merchant claims against the company, according to a regulatory filing. The program aims to eliminate certain restrictions on stock sales by Class B shareholders, primarily JPMorgan Chase, Bank of America, Citibank, and Wells Fargo. These shareholders have been covering legal liabilities related to merchant class actions that have persisted for over a decade.
As of October 1, 2023, Visa estimates interchange reimbursement fees related to these claims at approximately $49.6 billion. The proposed program, up for a vote in January, would offer bank Class B shareholders an opportunity for near-term liquidity, potential for better regulatory capital treatment, and a chance to unlock significant value. Visa emphasized that other Class A and Class C shareholders would still have equivalent protection from liabilities associated with outstanding merchant claims.
Visa's move to seek shareholder approval comes as the Class B shareholders have faced more prolonged stock liquidation restrictions than initially anticipated due to the protracted litigation. The company expressed its desire to address this by providing an option for liquidity and value realization for these shareholders.
While Visa has made progress in settling class actions by merchants alleging overcharging for credit and debit card transactions, it acknowledges its remaining exposure. Visa has resolved 90% of the payment volume at issue, amounting to approximately $6.6 billion in settlements. However, the company estimates remaining claims could result in an additional $25–$35 billion in damages exposure through 2022, pending any settlements or court decisions.
The proposed share exchange program would enable Class B shareholders to sell some or all of their shares, contingent on separate agreements with Visa where they commit to covering their share of litigation costs. The program requires shareholder approval, and the vote is set for the annual meeting on January 23.
Visa recognizes the importance of engaging shareholders to address the complex and ongoing legal challenges related to merchant claims. The proposed program represents an attempt to balance the interests of different shareholder classes while providing a mechanism for those who have covered legal liabilities to realize value and enhance liquidity.
While Class B shareholders will be crucial in determining the outcome, Visa has structured the proposal to ensure fairness and representation across all shareholder classes. The company's efforts reflect its commitment to resolving long-standing legal issues and creating a path forward that aligns with the interests of shareholders.
As the proposal heads to a vote, Visa will be closely watched to see how shareholders respond to this strategic move aimed at navigating the complexities of legal liabilities and unlocking value for stakeholders.
