No Monkey Scribes Here: The MasterCard IPO and the Role of the Lawyer

Josh Wright —  13 May 2006

Bill’s post concerning the role of lawyers in reducing regulatory costs reminded me that that I had forgotten to post after the recent Harvard Negotiation Law Review Symposium on Deal-Making and Strategic Negotiation (thanks for the invite Vic). I had blogged about the value of case studies for empirical scholarship here. The symposium included some very interesting discussions regarding what might be thought of as unconventional roles for the lawyer, i.e. managing regulatory costs and thinking about branding considerations.

Much of this discussion revolved around Vic’s paper, which argued that regulatory cost management, in the form of reducing antitrust exposure, was a primary motivation for the particular structure of the MasterCard IPO (see also Vic’s post). The symposium also included contributions regarding the MasterCard IPO from Mark Fenster, Gordon Smith, Scott Peppet, Susan Scafidi, and Laura Heymann (who blogged about her contribution at Coop). I just posted my short (8 pages) paper to SSRN entitled, “MasterCard’s Single Entity Strategy.” Here’s the abstract:

This comment is a response to Professor Fleischer’s analysis of the MasterCard IPO prepared for the Harvard Negotiation Law Review symposium. Professor Fleischer’s analysis of the MasterCard IPO suggests that the adoption of this particular deal structure was driven not by transactions costs, but branding considerations and antitrust exposure. Fleischer identifies two features of the MasterCard IPO as particularly responsive to both branding and potential antitrust liability: (1) the “reverseâ€? dual-class voting structure and (2) the charitable foundation. Fleischer correctly points out the proposed structure would reduce potential antitrust exposure by decreasing the merchant banks’ control over pricing decisions and highlights an important and underappreciated relationship between antitrust rules and corporate structure. This comment supplements Fleischer’s analysis of the antitrust implications of MasterCard’s new governance structure. Part I summarizes the antitrust environment facing the cooperative networks serving MasterCard and Visa. Part II considers the antitrust implications of MasterCard’s new organizational structure and Part III concludes with some thoughts regarding what the MasterCard IPO tells us about the role of lawyer in dealmaking.

The crux of my analysis is that while Vic is clearly right that the new structure is designed to reduce antitrust exposure under Section 1 of the Sherman Act (Section 2 suits are not covered by single entity immunity and are no trivial concern for MasterCard), the IPO’s biggest value (antitrust wise) is its potential to minimize the probability that judges and regulators attempt to regulate interchange fees. It was a fun event and I am glad I had the chance to participate. Do check out the papers if you are interested. Each provides a unique perspective on the MasterCard deal as well as its legal and broader social implications.

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