Google Considering Dutch Auction For IPO; Investment Bankers Crying
from the sorry-about-that... dept
New banking firms like WR Hambrecht have been pushing the idea of the "Dutch Auction IPO" where instead of having a bunch of greedy investment bankers setting the price of your IPO (and, of course, pricing it below the real market price to guarantee a first day pop that the press likes so much - even though it means lost money to the company) you let everyone and anyone bid on how much they want to pay, and then set the actual IPO price based on the highest price where all of your shares will sell out. For years, this option has been around, but most companies have been afraid to try it out, believing (perhaps correctly) that they needed big name investment bankers touting the stock to guarantee that it got enough attention from the financial community. Google, of course, doesn't have that problem. Everyone has been drooling over the concept of a Google IPO for ages, so they don't necessarily need the same support of a big time underwriter. So, it's no surprise to hear that they're at least considering the idea of a Dutch auction IPO sometime early next year. It does fit with Google's general nature, and could do wonders for those who believe in Dutch auctions as a much more equitable way of doing an IPO. Chances are it would make Google a lot more money, too, since it would cut their underwriting costs, and make sure that the deal wasn't underpriced - meaning Google gets the money that otherwise would have been thrown away to those flipping the stock on the first day. Still, the investment banks wooing Google probably are scared of this idea (they'll make less money, and won't be able to give their "friends" the favors they surely want) and will try to do whatever they can to convince them otherwise.
Thank you for reading this Techdirt post. With so many things competing for everyone’s attention these days, we really appreciate you giving us your time. We work hard every day to put quality content out there for our community.
Techdirt is one of the few remaining truly independent media outlets. We do not have a giant corporation behind us, and we rely heavily on our community to support us, in an age when advertisers are increasingly uninterested in sponsoring small, independent sites — especially a site like ours that is unwilling to pull punches in its reporting and analysis.
While other websites have resorted to paywalls, registration requirements, and increasingly annoying/intrusive advertising, we have always kept Techdirt open and available to anyone. But in order to continue doing so, we need your support. We offer a variety of ways for our readers to support us, from direct donations to special subscriptions and cool merchandise — and every little bit helps. Thank you.
–The Techdirt Team
Reader Comments
Subscribe: RSS
View by: Time | Thread
Google and an OpenIPO
[ link to this | view in chronology ]
Re: Google and an OpenIPO
having a dutch auction IPO guarantees a fair price for the stock, eliminates money left on the table and therefore decreases flipping. it also is less expensive for the company going public.
this makes perfect sense for google, who is already a household name, and does not need the backing of a large investment bank.
google would not be "screwing the little guy" nor would it be "taking the money and running" as you suggested. it would only be taking the money people think its stock is worth, their bids, which would result into a fair market price.
[ link to this | view in chronology ]
Re: Google and an OpenIPO
The theory behind IPO auctions is based on a private values setting, where everyone "just knows" how much the auctioned item is worth to them. But, if there's some uncertainty about the value, and if time and effort can help someone to get a better idea, then a uniform price auction is a very risky, inefficient way to set the price.
Your claim is so vauge that I can't tell whether you're referring to theory or practice (or just repeating the Hambrecht sales pitch). But both theory and past experience indicate that a uniform price auction does not guarantee an accurate or "fair" price.
[ link to this | view in chronology ]
Re: Google and an OpenIPO
So if use auction, Google can save costs.
Dutch Auction is one kind of auction developed my WR Hambrecht in 1998 also called "openIPO", in which investor set the price of an offering through an open bid process. The investment ban introduced the process in response to complaints by retail investors that they were unable to participate in IPOs because the lead managers of deals would allocated shares to their most important clients first, regardless of how much an investor might be willing to pay.
[ link to this | view in chronology ]
Re: Google and an OpenIPO
The first OpenIPO Hambrecht auction to price below market-clearing was Andover.net, their third IPO. After that, they changed the rule to make it harder for everyone to figure out if the offering was priced below market clearing. When I contacted Hambrecht to ask what the market-clearing price was on the last few auctions, they told me that they couldn't tell me because bids were proprietary information belonging to the issuer. When I contacted the issuers, they told me that they couldn't tell me anything because it was proprietary information belonging to Hambrecht.
IPO auctions have been used in many countries, but Hambrecht's IPO auctions are the only ones I've heard of where virtually no details about the bids are released to the public. Releasing general information about the bids has been routine for everyone except W.R. Hambrecht, which seems a bit odd for a company that claims to be bringing transparency to the process. They have every right to price below market-clearing, since the possibility is clearly explained on their website. Why are they so secretive about a supposedly straight-forward process?
[ link to this | view in chronology ]
Google and OpenIPO
[ link to this | view in chronology ]
Boston Courier Service-Same day Delivery Services
http://www.bocsit.com/Courier/Delivery/boston-ma
[ link to this | view in chronology ]