MasterCard Inc and Visa Inc have agreed to pay Discover Financial Services Inc $2.75 billion to settle a lawsuit over anti-competitive practices. Similar to the lawsuit filed in 2004 by American Express (settled for $3.9 billion), Discover claimed the credit card issuers harmed its business by preventing banks that issued MasterCard and Visa cards from also offering Discover cards.
Visa earmarked $3 billion from its initial public offering in March to cover potential litigation expenses; however $2.1 billion in November 2007 plus $1.89 billion now to Discover could spur the company to issue more shares.
But here’s the kicker. The lawsuit has triggered Discover’s former parent, Morgan Stanley to issue a claim stating they are entitled to $1.2 billion of the proceeds. Discover claims that Morgan Stanley is in breach of the agreement, and the amount it will pay to its former parent “is a matter of dispute.”