Visa and Mastercard: Judge May Not Approve Settlement

In March, Visa and Mastercard announced that they had reached a settlement to a long-standing antitrust lawsuit. As part of the agreement, the networks would slightly lower credit interchange fees and cap these fees at the current level for five years. At the time, we were happy to see this lawsuit seemingly resolved. But according to The Wall Street Journal, the judge has now informed Visa and Mastercard that she deems these changes inadequate and is unlikely to approve the settlement. This would presumably force the networks to arrange a new settlement or go to trial. While this is an obvious setback and we would prefer to see this matter closed as quickly as possible, we believe Visa and Mastercard’s unique competitive positions and their wide moats create ongoing legal and regulatory event risk, and this lawsuit represents just one piece of that. We will maintain our $272 and $451 fair value estimates for Visa and Mastercard, respectively, and see shares for both companies as about fairly valued.