MasterCard, Visa settle Discover suit for $2.75 bln

By Dan Wilchins and Emily Chasan

NEW YORK (Reuters) - MasterCard Inc and Visa Inc said they agreed to pay credit card issuer and network Discover Financial Services Inc a total of $2.75 billion to settle a lawsuit over anti-competitive practices.

The payment is big enough to potentially force Visa to issue more shares, and has triggered a lawsuit by Discover's former parent, Morgan Stanley, which says it is entitled to $1.2 billion of the proceeds.

Discover sued credit card networks MasterCard and Visa in 2004 for harming its business by preventing banks that issued MasterCard and Visa cards from also offering Discover cards. Discover's lawsuit was similar to one American Express Co filed in 2004, which MasterCard settled for $1.8 billion in June and Visa settled for about $2.1 billion in November 2007.

Just before the Discover suit was scheduled to go to trial earlier this month, the companies agreed to settle. On Monday, the companies disclosed the size of the settlements and other terms.

Under the settlement agreement, Visa will pay $1.89 billion, the company said in a statement. MasterCard said it will pay $862.5 million. Discover had sought $6 billion in damages from the two companies.

Visa set aside $3 billion of proceeds from its initial public offering in March to cover some of its potential litigation expenses. With the American Express and the Discover settlements, Visa is now paying out more than $3 billion, which according to the prospectus from the company's initial public offering could spur it to issue more shares. Visa's nearly $20 billion IPO in March was the largest ever U.S. stock market debut.

LITIGATION AFTER THE LITIGATION