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VISA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
September 30, 2015
the Visa Europe shares, which, subject to certain adjustments, applies Visa Inc.’s forward price-to-
earnings multiple (as defined in the unamended option agreement), or the P/E ratio, at the time the
unamended option is exercised, to Visa Europe’s adjusted net income for the forward 12-month period
(as defined in the unamended option agreement), or the adjusted sustainable income. The calculation
of Visa Europe’s adjusted sustainable income under the terms of the unamended put option agreement
includes potentially material adjustments for cost synergies and other negotiated items. Upon exercise,
under the unamended terms, the key inputs to this formula, including Visa Europe’s adjusted
sustainable income, would be the result of negotiation between the Company and Visa Europe. The
unamended put option agreement provides an arbitration mechanism in the event that the two parties
are unable to agree on the ultimate purchase price.
The fair value of the unamended put option represents the value of Visa Europe’s option under its
unamended terms, which, under certain conditions, could obligate the Company to purchase its
member equity interest for an amount above fair value. The fair value of the unamended put option
does not represent the actual purchase price that the Company may be required to pay if the
unamended option is exercised. Given current economic conditions, the purchase price under the
unamended terms of the put option would likely be in excess of $15 billion. While the unamended put
option is in fact non-transferable, its fair value represents the Company’s estimate of the amount the
Company would be required to pay a third-party market participant to transfer the potential obligation in
an orderly transaction.
The fair value of the unamended put option is computed by comparing the estimated strike price,
under the terms of the unamended put option agreement, to the estimated fair value of Visa Europe.
The fair value of Visa Europe is defined as the estimated amount a third-party market participant might
pay in an arm’s-length transaction under normal business conditions. A probability of exercise
assumption is applied to reflect the possibility that Visa Europe may never exercise its option in its
unamended form.
The estimated fair value of the unamended put option represents a Level 3 accounting estimate
due to a lack of trading in active markets and a lack of observable inputs in measuring fair value. See
Note 4—Fair Value Measurements and Investments. The valuation of the unamended put option
therefore requires substantial judgment. The most subjective of estimates applied in valuing the
unamended put option are the assumed probability that Visa Europe will elect to exercise its option in
its unamended form, and the estimated differential between the P/E ratio and the P/E ratio applicable
to Visa Europe on a standalone basis at the time of exercise, which the Company refers to as the “P/E
differential.”
Exercise of the unamended put option is at the sole discretion of Visa Europe (on behalf of the Visa
Europe shareholders pursuant to authority granted to Visa Europe, including under its Articles of
Association). The Company estimates the assumed probability of exercise based on the unamended
terms of the put option agreement and other reasonably available information including, but not limited to:
(i) Visa Europe’s stated intentions (if any) to exercise the put option in its unamended form; (ii) evaluation
of market conditions, including the regulatory environment, that could impact the potential future
profitability of Visa Europe; and (iii) other qualitative factors including, but not limited to, qualitative factors
related to Visa Europe’s largest members, which could indicate a change in their need or desire to
liquidate their investment holdings. Factors impacting the assumed P/E differential used in the calculation
include material changes in the P/E ratio of Visa and those of a group of comparable companies used to
estimate the forward price-to-earnings multiple applicable to Visa Europe.
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