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What happened

On Thursday, the otherwise mighty payment card giant Visa (NYSE: V) was the second-worst performing S&P 500 index component stock. It fell by nearly 2.6% in value, following news that the status of a large pile of non-publicly traded shares could soon be changed.

So what

Visa announced that it has begun a process to allow its Class B shareholders to freely sell some of their stock.

The Class A shares are the ones that are publicly traded, while Classes B and C shares are not. Both of the latter are mainly owned by financial institutions that partner with Visa.

In the company’s words, the B class shares were created “to provide protection to the Class A and Class C stockholders from certain pre-IPO litigation referred to as U.S. Covered Litigation.”

This refers to potential loss claims from merchants dating to Visa’s pre-IPO history as an entity collectively owned by those banks. Visa effectively made the banks responsible for payouts deriving from these lawsuits. Initially, the stock was not to be sold until all of the litigation was completed.

According to the company, about 90% of the payments volume and interchange fees under dispute from that era have been resolved.

The company’s initial public offering (IPO) took place in 2008, with the three-class structure engineered in advance of the stock exchange listing.

Now what

Visa said it will discuss this potential conversion with its stockholders in the coming weeks or months. If there is a positive response to the company’s plan, it aims to move forward with a shareholder vote on the matter.

Currently, the Class B shares are collectively worth about $96 billion. At the moment, the market cap of the Class A shares traded on the New York Stock Exchange is over $502 billion.

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Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Visa. The Motley Fool has a disclosure policy.

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