epending on whom you talk to, either MasterCard Inc.'s share price or its legal liability could be deemed "priceless." The card Association (NYSE:MA) had its initial public offering of stock on May 24, 2006 at $39 per share, raising almost $2.4 billion.

Merchants involved in the class-action lawsuit alleging antitrust violations against MasterCard and Visa U.S.A. see, ("Card Association transparency bodes well for industry The Green Sheet, May 22, 2006, issue 06:05:02) are fighting MasterCard's plan to pass on liability from its member banks to public shareholders.

In a letter to the judge presiding over the case, sent two days before the IPO, the plaintiffs challenged the agreements, which altered ownership of the card Association, as a fraudulent means toward eliminating MasterCard's ability to charge its member banks for its liabilities.

Market cheerleaders

The first research firms that covered the stock issued buy ratings. Gabelli & Co. Inc. Analyst David Siino gave a target price of $43 per share. That may be a conservative valuation, however. "We estimate EPS [earnings per share] growth of 16.5% through 2010," Siino wrote. "Our 2007 Private Market Value is $60 per share."

Siino apparently agrees with merchants that MasterCard's member banks have insulated themselves against litigation penalties. "With the transition to new ownership, MasterCard will lose its ability to assess issuers in order to recover all or a portion of payments for settlements, judgments and litigation.

"While not proclaiming ourselves to be legal experts, it is worth noting that MasterCard has a liquid balance sheet, with $1.9 billion of cash ... and substantial free cash-flow generation ... to buffer it from adverse outcomes," he advised investors. Research firm Morgan Keegan & Co. issued an "outperform" rating on the stock.

MasterCard will use $650 million of net proceeds to increase capital and fight legal and regulatory challenges. The balance of proceeds, $1.75 billion, has gone to member banks, reducing their cumulative stake to 41% of equity.