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Alibaba Shows That Chinese Firms Can Leave IPO Money On The Table As Well As US Firms
from the not-such-a-good-thing dept
There's lots of buzz today about how China is experiencing a dot com bubble similar to what the US faced a while back, with the news of Alibaba.com's first day pop on the Hong Kong Stock Exchange. The stock nearly tripled after debuting, which is the type of thing that gets lots of press. Yet, once again, people seem to be missing out on the simple fact that this first day pop means the company left a lot of money on the table. The bankers who brought the stock out mispriced the offering by 3x apparently. Pricing certainly isn't an exact science -- and it's perfectly reasonable to slightly underprice the offering to lower some of the initial risk, but to underprice a stock so badly is not a good thing. Effectively, Alibaba could have raised 3x the amount of money they got, with no additional dilution. Instead, it raised 1/3 the money, and the other 2/3 went to Wall Street folks who flipped the stock quickly. While this does mean that Alibaba can now raise more with secondary offerings (assuming the price stays up), it still looks like the company left an awful lot of money on the table.
Reader Comments
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"2/3 went to bankers who flipped the stock quickly"
And this surprised you?
Bankers take companies public, then they take the same companies private. They promote mergers so they can obtain synergies - that can't/don't happen. Then they break the same company up to . . . . blah blah blah".
It's all a game that the banks/brokers, etc. control for their own good - not for the good of the companies they are advising.
Nothing illegal. Just remember to forget the BS - it's a game.
The smart ones were
- Steve Case, who bought a bigger healthier Time Warner with a smaller, faltering AOL, and
- Google who controlled their own IPO, and kept much more of the proceeds than the money industry wanted them to.
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Reminds me of
Every time I hear about IPO's it reminds me of three things:
1. Wall Street the movie.
2. Boiler Room the movie.
3. ZZZZ Best Carpet Cleaning.
Am I showing my age with number three?
It's a game that has too many things going on behind the scenes that I have no control over, so I stay away.
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I just learned about this stuff in school and to see it in some of the news I read is really awesome.
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They didn't leave much on the table
This post misses the point of the IPO. First, as indicated above, both the bankers and the people they flip to need to be confident they will make a profit, so they want the stock to go up significantly on the open.
Second, private shareholders and the Chinese Government still hold most of the stock, so when the stock went up by 3x, THEIR stock went up by 3x.
I don't know what the holding times for stock are in HK, nor what portion is held by the Chinese Government, but there are likely to be some very happy shareholders as a result of "leaving money on the table"
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Re: They didn't leave much on the table
This post misses the point of the IPO. First, as indicated above, both the bankers and the people they flip to need to be confident they will make a profit, so they want the stock to go up significantly on the open.
People said this last time I made this point, but, frankly, it's a load of bull. You do realize that bankers get their fees for underwriting the IPO? Why do they need an additional incentive? Second, in no other market would anyone underprice something by 3X just to keep future buyers happy.
Investors are supposed to be about *risk* and here you are saying they need to take away all the risk? Sorry, I don't buy it.
Second, private shareholders and the Chinese Government still hold most of the stock, so when the stock went up by 3x, THEIR stock went up by 3x.
That's a bizarre way of looking at it. Their stock was ALREADY VALUED at that 3X. That's why the shares went there. They could have opened at that upper value and not only would their stock be worth that amount, but they'd have 3X the amount of cash they raised.
Your argument is:
I own 1,000 shares of stock. It's really valued at $30/share, but I'm going to IPO at $10 and I will sell 100 of my shares in the IPO.
At the IPO, I make 100 * $10 = $1000 but the stock now jumps up to $30, so my remaining shares are now worth $30 * 900 = $27,000.
But that's incorrect. The market has said that you could have sold those first 100 shares for $3000, so you just left $2000 on the table, and the rest of your shares would STILL be worth $27,000.
I don't know what the holding times for stock are in HK, nor what portion is held by the Chinese Government, but there are likely to be some very happy shareholders as a result of "leaving money on the table"
They they don't understand some very basic math.
I don't deny that there's some "publicity" value that's basically paid for by the pop, but I find it hard to believe it's worth all that money that was left on the table.
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Why do they need an additional incentive?
Mike,
The people that come here every day remember what you said in previous articles.
Not long ago you said that although the pharmaceutical industry was already making "masssive" profits, they needed further incentives to invent new drugs.
Yet, here you say that the bankers should be happy with their fees and don't need "additional incentives" to underwrite IPOs.
Did you forget that "massive profits" are never enough, Mike?
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Re: Why do they need an additional incentive?
The people that come here every day remember what you said in previous articles.
As they should. And if I actually said something contradictory, I'd expect them to call me on it. But I didn't say anything contradictory here.
Not long ago you said that although the pharmaceutical industry was already making "masssive" profits, they needed further incentives to invent new drugs.
No. That's not what I said. I said since that there were ways they could rely on new business models to make massive profits -- and if they were willing to pay attention to those new business models, they might be willing to shift away from their older business models. The key to these new business models is that they would allow *more* people to get healthier. In other words, a total win-win with no one losing anything.
I was not saying, as you seem to be implying, that pharma companies would make things more expensive for people. I was saying the opposite.
Yet, here you say that the bankers should be happy with their fees and don't need "additional incentives" to underwrite IPOs.
This is not a win-win situation. I have no problem with bankers making as much money as they can... as long as it doesn't involve someone else getting screwed. In this case, the company got screwed. They sold stock at 1/3 the price they should have. My point is that this was bad for the company -- which it was. And if the company were smart they wouldn't have allowed that to happen.
Don't confuse my "massive profits" statement. I wasn't saying that massive profits are always justified. I was saying that there were win-win solutions where pharma could make massive profits and that was a good thing. This is a case where a company got screwed over for no good reason.
Pretty different, right? And pretty obvious to someone who actually understands the context and isn't just looking to troll...
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lalalallol
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but...
if their market is truly experiencing a .com bubble, then there is no such thing as money on the table since irrational exuberance can make the price be all kinds of strangeness. tripling was small taters in the .com days... and we'll see how badly it was mispriced if the bubble pops, too.
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