MasterCard Incorporated announced it has reached an agreement to settle its outstanding litigation with American Express.
The form of the agreement calls for 12 quarterly payments by MasterCard, beginning in the third quarter of 2008, of $150 million, contingent upon the performance of American Express’s U.S. Global Network Services business. On a tax-affected net present value basis, the settlement payments are estimated to be, in the aggregate, approximately $1 billion. MasterCard will take a charge for the settlement in the current quarter. The maximum nominal amount of the settlement is $1.8 billion.
“We are pleased to have reached a settlement with terms that will enable us to keep our strong balance sheet intact, so we can continue to build on our exceptional business results and vigorously pursue our strategy,” said MasterCard President and Chief Executive Officer Robert W. Selander. “Eliminating the uncertainty, time commitment, and expense of a prolonged court case is in the best interest of our shareholders, our customers and our management team,” he stated.
About MasterCard Incorporated
MasterCard Incorporated advances global commerce by providing a critical economic link among financial institutions, businesses, cardholders and merchant worldwide. As a franchisor, processor and advisor, MasterCard develops and markets payment solutions, processes over 18 billion transactions each year, and provides industry-leading analysis and consulting services to financial institution customers and merchants. Through its family of brands, including MasterCard(R), Maestro(R) and Cirrus(R), MasterCard serves consumers and businesses in more than 210 countries and territories. For more information go to http://www.mastercard.com.
AMERICAN EXPRESS STATEMENT American Express announced it has reached an agreement with MasterCard Inc. to drop a lawsuit alleging that MasterCard had illegally blocked American Express from the bank-issued card business in the United States.
Under the terms of the agreement, MasterCard will pay American Express up to $1.8 billion. This follows an earlier agreement with Visa to settle similar claims for up to $2.25 billion. Subject to certain performance criteria, American Express would receive more than $4 billion for agreeing to drop its claims against the two credit card networks. The combined antitrust settlement is the largest in U.S. history.
The MasterCard payments to American Express will be made in quarterly installments over three years. Together with the previously announced payments from Visa, this represents $880 million annually for American Express over the next three years, starting in the third quarter of 2008 and running through mid-year 2011. American Express would receive two subsequent quarterly payments of up to $70 million from Visa in the latter half of 2011.
“The $4 billion settlement represents a very satisfactory resolution of our lawsuits against the country’s two major card associations,” said Kenneth I. Chenault, chairman and chief executive officer. Mr. Chenault also said, “Business conditions continue to weaken in the U.S. and so far this month we have seen credit indicators deteriorate beyond our expectations. While it is too early to assess the impact of these indicators, the antitrust settlement we’ve reached with MasterCard provides us with a multi-year source of funds that should, among other things, help to lessen the impact of this weakening economic cycle and, when conditions improve, give us the ability to step up investments in the business.”
American Express filed the suit in Federal court (November 2004) to seek monetary damages for the lost business opportunity that resulted from the illegal conspiracy to boycott American Express. Following American Express’ settlement with Visa (November 2007) and the dismissal of all the bank defendants, MasterCard was the sole remaining defendant in the antitrust lawsuit. The case will now be dismissed.
The payments from both MasterCard and Visa are subject to American Express achieving certain quarterly performance criteria in its U.S. Network services business. Given the strong growth momentum within that business, the Company is highly optimistic about its ability to meet those performance requirements. Proceeds from a possible settlement with MasterCard were not built into the American Express 2008 financial plan. American Express Company is a leading global payments and travel company founded in 1850. For more information, visit www.americanexpress.com.
Visa Settlement: American Express reached a $2.25 billion settlement with Visa in November 2007 and recognized an initial payment of $1.13 billion in the fourth quarter of last year. The first installment of $70 million was recognized in first quarter 2008. The remaining payments of 2 of 3 up to $70 million per quarter are scheduled to be received over the next 15 quarters, ending fourth quarter 2011.
MasterCard Settlement: Under terms of the $1.8 billion settlement with MasterCard, American Express would receive quarterly payments of up to $150 million over the next 12 quarters, starting in the third quarter of 2008 and ending second quarter 2011.