American Express Settles Antitrust Claims against MasterCard for $1.8 Billion
American Express (NYSE: AXP) announced today that it has reached an agreement with MasterCard Inc. to drop a lawsuit alleging that MasterCard had illegally blocked American Express from the bank-issued card business in the United States.
Under the terms of the agreement, MasterCard will pay American Express up to $1.8 billion. This follows an earlier agreement with Visa to settle similar claims for up to $2.25 billion. Subject to certain performance criteria, American Express would receive more than $4 billion for agreeing to drop its claims against the two credit card networks. The combined antitrust settlement is the largest in U.S. history.
The MasterCard payments to American Express will be made in quarterly installments over three years. Together with the previously announced payments from Visa, this represents $880 million annually for American Express over the next three years, starting in the third quarter of 2008 and running through mid-year 2011. American Express would receive two subsequent quarterly payments of up to $70 million from Visa in the latter half of 2011.
“The $4 billion settlement represents a very satisfactory resolution of our lawsuits against the country’s two major card associations,” said Kenneth I. Chenault, chairman and chief executive officer.
Mr. Chenault also said, “Business conditions continue to weaken in the U.S. and so far this month we have seen credit indicators deteriorate beyond our expectations. While it is too early to assess the impact of these indicators, the antitrust settlement we’ve reached with MasterCard provides us with a multi-year source of funds that should, among other things, help to lessen the impact of this weakening economic cycle and, when conditions improve, give us the ability to step up investments in the business.” American Express filed the suit in Federal court (November 2004) to seek monetary damages for the lost business opportunity that resulted from the illegal conspiracy to boycott American Express. Following American Express’ settlement with Visa (November 2007) and the dismissal of all the bank defendants, MasterCard was the sole remaining defendant in the antitrust lawsuit. The case will now be dismissed.
The payments from both MasterCard and Visa are subject to American Express achieving certain quarterly performance criteria in its U.S. Network services business. Given the strong growth momentum within that business, the Company is highly optimistic about its ability to meet those performance requirements. Proceeds from a possible settlement with MasterCard were not built into the American Express 2008 financial plan.
