Visa 2009 Annual Report Download - page 82

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Table of Contents
VISA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
September 30, 2009
(in millions, except as noted)
Fair Value of Put Option. At September 30, 2009, the Company determined the fair value of the put option to be approximately $346 million. While
this amount represents the fair value of the put option at September 30, 2009, it does not represent the actual purchase price that the Company may be required
to pay if the option is exercised, which could be several billion dollars or more. The fair value of the put option represents the value of Visa Europe's option,
which under certain conditions could obligate the Company to purchase its member equity interest for an amount above fair value. While the 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 put option is computed using probability-weighted models designed to estimate the Company's liability assuming various possible
exercise decisions that Visa Europe could make under different economic conditions in the future, including the possibility that Visa Europe will never
exercise its option. The most significant of these estimates are the assumed probability that Visa Europe will elect to exercise its option and the estimated
differential between the P/E ratio and the P/E ratio applicable to Visa Europe on a stand alone basis at the time of exercise, which the Company refers to as
the "P/E differential".
Exercise of the put option is at the sole discretion of Visa Europe (on behalf of the Visa Europe shareholders pursuant to authority granted to Visa
Europe, under its articles of association). The Company estimates the assumed probability of exercise based on reasonably available information including,
but not limited to: (i) Visa Europe's stated intentions; (ii) indications that Visa Europe is preparing to exercise as reflected in its reported financial results;
(iii) evaluation of market conditions, including the regulatory environment, that could impact the potential future profitability of Visa Europe; and
(iv) qualitative factors applicable 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 Inc. and those of a group of
comparable companies used to estimate the forward price-to-earnings multiple applicable to Visa Europe.
In determining the fair value of the put option at September 30, 2009, the Company assumed a 40% probability of exercise by Visa Europe at some
point in the future and a P/E differential at the time of exercise of 5.3x. These assumptions are consistent with those used in the valuation of the put option at
September 30, 2008. The put option is exercisable at any time at the sole discretion of Visa Europe. As such, the put option liability is included in accrued
liabilities on our consolidated balance sheet at September 30, 2009. Classification in current liabilities is not an indication of management's expectation of
exercise and simply reflects the fact that the obligation resulting from the exercise of the instrument could become payable within 12 months. Changes in fair
value are included in the Company's consolidated statement of operations. See Note 5—Investments and Fair Value Measurements for additional discussion of
the fair value of the put option.
Visa Call Option Agreement
Visa Europe granted to Visa Inc. a perpetual call option under which the Company may be entitled to purchase all of the share capital of Visa Europe.
The Company may exercise the call option, in the event of certain triggering events. These triggering events involve the performance of Visa Europe
measured as an unremediated decline in the number of merchants or ATM's in the Visa Europe region that accept Visa-branded products. The Company
believes the likelihood of these triggers occurring to be remote.
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