Nov. 7 (Bloomberg) -- Visa Inc., the world's largest credit- card company, offered $2.25 billion to settle a 2004 antitrust suit brought by American Express Co., removing an obstacle to Visa's planned initial public offering.

The tentative accord would be funded by Visa's member banks, which must approve the plan, the San Francisco-based company said in a statement today. New York-based American Express said separately that MasterCard Inc. is now the sole defendant and may be liable for ``billions of dollars'' in damages.

American Express, the third-largest credit-card network, sued in November 2004 after the U.S. Supreme Court ruled Visa and MasterCard violated antitrust laws by preventing member banks from offering rival cards. Citigroup Inc. and Bank of America Corp., the two biggest U.S. banks, later agreed to offer American Express services. Visa is planning an IPO for early next year.

``Clearly they want to create a roadshow environment for their IPO where they're able to talk about their fundamentals rather than pending litigation,'' said Craig Maurer, a Calyon Securities Inc. analyst in New York. A roadshow involves drumming up interest in a stock by making presentations to investors.

American Express fell $3.20, or 5.5 percent, to $55.37 today in New York Stock Exchange composite trading. MasterCard, the second-biggest card company, went public in May 2006 and has since gained more than 400 percent, closing today at $199.48. Both were little changed in extended trading after the settlement was announced.

Aiming at MasterCard

``We plan to move forward with the litigation to hold MasterCard accountable for the illegal actions that blocked banks from working with us for many years,'' said American Express Chief Executive Officer Kenneth Chenault in the company's statement.

Sharon Gamsin, spokeswoman for Purchase, New York-based MasterCard, said before the release her company would ``consider a settlement if it were commercially reasonable and in the best interests of our company.''

The Visa accord resolves American Express's claims against banks it sued in the case, including Wells Fargo & Co., Washington Mutual Inc., JPMorgan Chase & Co. and Capital One Financial Corp., Visa and American Express said.

Visa agreed to pay American Express $945 million and additional payment from the bank defendants by no later than March 31, according to the Visa statement. Starting at that time, Visa also will pay American Express up to $70 million a quarter for 16 quarters, for a maximum of $1.12 billion, Visa said.

Terms of Payment

American Express said in its statement that the total payment by Visa and the banks would be $2.25 billion. Visa said its nominal payout is $2.065 billion, with an accounting reserve of $1.9 billion and a net present value to Visa of $1.8 billion.

American Express said it's likely to have higher costs in the fourth quarter for marketing, promotion and other expenses ``designed to capitalize on competitive opportunities,'' as well as philanthropy, costs of the litigation and changes in the way it calculates the cost of ``rewards'' and perks given to cardholders.

The total added expenses ``could represent a significant portion of the payment expected to be realized this quarter,'' American Express said. Decisions on how to spend the money will be made each quarter, it said.

Cards Over Cash

Visa, which processes more transactions than any rival, is going public to capitalize on consumers' growing preference for credit and debit cards over cash and checks. In 2003, Visa agreed to pay $2 billion and MasterCard $1 billion to settle antitrust claims filed by a nationwide class of U.S. retailers led by Wal- Mart Stores Inc.

American Express is a lender that offers cards as well as running a network that processes transactions for other issuers. MasterCard and Visa operate only networks to handle transactions.

The case is American Express v. Visa, 04-cv-8967, U.S. District Court, Southern District of New York ((Manhattan)

To contact the reporter on this story: Hugh Son in New York at hson1@bloomberg.net

Last Updated: November 7, 2007 18:05 EST