Every time an IPO has a big pop on its opening day, the same tired debate gets reprised: did the investment banks leading the deal rip off the company raising equity capital? The arguments on both sides are well rehearsed — I covered them myself in no little detail, for instance, after LinkedIn went public, in 2011.
It’s going to be a long time before the various lawsuits shake themselves out, but one thing’s already clear with respect to the Facebook IPO: absolutely no one has come out of it looking good. It’s worth going down the List of Incompetence here, because regardless of whether any of this was illegal, there are a lot of extremely well-compensated people who, to use a technical term, screwed the pooch on this one.
Yesterday, it was the greenshoe — the standard feature of IPOs which also happens to be an officially-mandated case of naked short-selling. Today, it’s another odd special case: the way in which analysts’ estimates of companies’ future earnings are deliberately not made public prior to the IPO — except to select investment-banking clients who are likely to put in large orders for IPO stock.
The Facebook IPO is now set to raise an absolutely astonishing amount of money — as much as $18 billion, if the greenshoe is exercised and the offering prices at the top of the indicated range. As a result, it’s certain to be the single largest technology IPO of all time. (Most companies don’t even have a valuation of $18 billion when they IPO, let alone have $18 billion worth of stock for sale to the public.)
There are two ways of looking at the $5 billion or so that Facebook is going to raise in its IPO. One is to ask what on earth the company is going to do with all that money: it’s already making substantially more in the way of profits than it is likely to want to spend, and the chances are that the $5 billion is just going to go straight into the bank, where it will earn roughly 0.77% per year. This is not the best use of shareholder funds, and it’s hard to see why Facebook’s CFO would want the cash pile to be any bigger.
Dan Primack gives three reasons why Groupon isn’t going to raise its IPO price by a buck or two today. The most important is #2: Groupon really wants to allocate shares to people who aren’t going to simply flip them on day one. If it can use a slightly lower share price to attract long-term buy-and-hold investors, it’ll happily do so.
As I secretly hoped that he might, Guan came to the rescue and provided me with exactly what I was looking for — and with Thomson Reuters data, no less! (It comes from SDC Platinum, I should probably befriend someone there.) I wanted a chart of the ratio of foreign IPOs to domestic ones, for U.S. companies, on a rolling five-year basis, to see whether the current level around 10% constitutes a big spike upwards. And the answer is that yes, it does:
In the blue corner, we have Joe Nocera and Henry Blodget (twice). In the red corner, there’s The Epicurean Dealmaker (twice), with The Analyst as cornerman. The debate centers on the fact that the shares LinkedIn sold Thursday are worth hundreds of millions of dollars more than LinkedIn received from its bankers. To Nocera and Blodget, the conclusion is clear: LinkedIn’s bankers screwed the company out of that money, giving it instead to their favored buy-side clients.