Visa 2007 Annual Report Download - page 106

Table of Contents
adjustments. The value of the purchase consideration, consisting of all outstanding shares of class Canada, class AP, class LAC, and class CEMEA common
stock, was measured at June 15, 2007, (the "measurement date") the date at which all parties entered into the reorganization agreement, and was determined to
have a fair value of approximately $12.6 billion. The Company utilized two valuation methodologies to calculate the value of the contributed businesses, an
analysis of comparable companies and a discounted cash flow analysis. Under the comparable company analysis, the Company evaluated publicly traded
companies with similar industry, business model and financial profiles. The most comparable company identified and, therefore, the most significant input
into this analysis was MasterCard. Under the discounted cash flow analysis, the Company applied discount rates and terminal values to the projected cash
flows of the acquired regions.
Visa Inc. Common Stock Issued to Visa Europe
Visa Europe remained a separate entity owned and governed by its European member banks. Under the terms of the reorganization, Visa Europe
exchanged its membership interest in Visa International and ownership in Inovant for a put-call option agreement and a framework agreement (as described
below) and the following consideration:
• An 8.1% ownership interest in the form of all outstanding class EU (series I) and class EU (series III) common stock. The Company determined
the fair value of this stock to be approximately $3.1 billion at the measurement date based on its relative value when compared to the value of the
purchase consideration provided to the acquired regions in exchange for their historical membership interest in Visa International and ownership
interest in Visa Canada.
• A 3.6% ownership interest in the form of all outstanding class EU (series II) common stock. This stock is redeemable by Visa Inc. at any time
after the later of an initial public offering or October 10, 2008 at a price of $1.146 billion adjusted for dividends and certain other adjustments.
Visa Europe also has the option to require the Company to redeem the class C (series II) common stock at any time after the later of the
consummation of an initial public offering or December 4, 2008. The Company determined the fair value of this stock to be approximately
$1.104 billion at the reorganization date by discounting the redemption price using a risk-free rate based on the probability and timing of the
successful completion of an initial public offering as this event will trigger the redemption feature of this stock.
Visa Europe Put-Call Option Agreement
As discussed in Note 4, Global Restructuring Agreement, Visa Inc. entered into a put-call option agreement with Visa Europe. At the date of
reorganization, the fair value of the put option was approximately $346 million, which was recorded in other liabilities on the consolidated balance sheet. The
Company determined that the call option has nominal value at the reorganization date as the conditions under which the call is exercisable are deemed remote.
Liability Under Framework Agreement
The relationship between the Company and Visa Europe subsequent to the reorganization is governed by a framework agreement, which provides for
trademark and technology licenses and bilateral services.
Under the trademark and technology license agreement, Visa Inc., Visa U.S.A., Visa International and Inovant, as licensors, granted Visa Europe
exclusive, irrevocable and perpetual licenses to use the Visa trademarks and technology intellectual property owned by the licensors and certain affiliates
within the Visa Europe region for use in the field of financial services, payments, related information technology and information processing services and
participation in the Visa system.
The Company determined that the base license fee, as adjusted in future periods based on the growth of the gross domestic product of the European
Union, approximated fair value. The Company made this determination through an analysis of the fee rates implied by the economics of the licenses.
However, due to the first and second fee reduction components described below, for financial accounting purposes, the trademark and technology licenses
represented a contract that was below fair value.
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