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How did they try to play the banks?

by haliax 14y ago

nikcub 14y ago
They watched as all the other tech IPO's of the time had the large pop in the first day of trading. that incease in price goes to the banks and the company "misses out" (since fair value was higher in the public market). Google tried to minimize that pop by ditching the traditional underwriting style and roadshow and instead implementing a dutch auction for pre-IPO shares. the banks were so upset at google attempt to sideline them from the process that they ended up colluding with each other (allegedly) to fix the price. (The process was that after the roadshow, each bank would submit a sealed bid with their price and purchase allocation. The auction system[1] worked by allocating by highest price and allocation backwards until the entire allocation was sold. Somehow most of the banks bid within a few dollars of each other and at a price that was below even the lowest price estimates). Price ended up popping in the first day, week, month, Google missed out anyway. Facebook co-opted a number of underwriters and was in a position to leverage itself a good deal (1.5% fees instead of 5-7%), did a large roadshow and took orders the traditional way. Because they pitched the stock so well they both got a higher price than expected and also raised and sold a lot more shares than was expected. They ended up doing what Google tried to do but without the arrogance (I guess you could say that). the underwriters for Facebook got a raw deal, they had their fees slashed, they had to share their fees with a group of other underwriters (there is usually one main and 2-3 secondaries, this deal had morgan stanley as a lead and heaps of others). They ended up sharing $175M in fees and have underwritten billions in stock and have today seen 10% of their position wiped out. [1] http://en.wikipedia.org/wiki/Dutch_Auction http://en.wikipedia.org/wiki/Dutch_Auction
- rapind 14y ago
  So basically Zuck may go down in history, not as an internet revolutionary, but as the guy who manufactured to greatest IPO to date.
  - nikcub 14y ago
    credit should go to David Ebersman, the CFO - he planned and organized the whole thing and apparently wrote all the filing docs himself. turned out to be a great and critical hire http://allthingsd.com/20120131/the-quiet-man-meet-the-real-face-of-the-facebook-ipo-cfo-david-ebersman/ http://allthingsd.com/20120131/the-quiet-man-meet-the-real-f...
- maxerickson 14y ago
  A big threat the banks can make is that if you play hardball, they won't do business with you next time. I guess that doesn't matter so much for a $100 billion IPO.

How did they try to play the banks?

by haliax 14y ago

How did they try to play the banks?

They watched as all the other tech IPO's of the time had the large pop in the first day of trading. that incease in price goes to the banks and the company "misses out" (since fair value was higher in the public market). Google tried to minimize that pop by ditching the traditional underwriting style and roadshow and instead implementing a dutch auction for pre-IPO shares. the banks were so upset at google attempt to sideline them from the process that they ended up colluding with each other (allegedly) to fix the price. (The process was that after the roadshow, each bank would submit a sealed bid with their price and purchase allocation. The auction system[1] worked by allocating by highest price and allocation backwards until the entire allocation was sold. Somehow most of the banks bid within a few dollars of each other and at a price that was below even the lowest price estimates). Price ended up popping in the first day, week, month, Google missed out anyway. Facebook co-opted a number of underwriters and was in a position to leverage itself a good deal (1.5% fees instead of 5-7%), did a large roadshow and took orders the traditional way. Because they pitched the stock so well they both got a higher price than expected and also raised and sold a lot more shares than was expected. They ended up doing what Google tried to do but without the arrogance (I guess you could say that). the underwriters for Facebook got a raw deal, they had their fees slashed, they had to share their fees with a group of other underwriters (there is usually one main and 2-3 secondaries, this deal had morgan stanley as a lead and heaps of others). They ended up sharing $175M in fees and have underwritten billions in stock and have today seen 10% of their position wiped out. [1] http://en.wikipedia.org/wiki/Dutch_Auction http://en.wikipedia.org/wiki/Dutch_Auction

rapind 14y ago
So basically Zuck may go down in history, not as an internet revolutionary, but as the guy who manufactured to greatest IPO to date.
- nikcub 14y ago
  credit should go to David Ebersman, the CFO - he planned and organized the whole thing and apparently wrote all the filing docs himself. turned out to be a great and critical hire http://allthingsd.com/20120131/the-quiet-man-meet-the-real-face-of-the-facebook-ipo-cfo-david-ebersman/ http://allthingsd.com/20120131/the-quiet-man-meet-the-real-f...
maxerickson 14y ago
A big threat the banks can make is that if you play hardball, they won't do business with you next time. I guess that doesn't matter so much for a $100 billion IPO.