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.
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  1. identicon
    jassi, 7 Feb 2004 @ 7:34pm

    Re: Google and an OpenIPO

    Auctions are the least common form of price setting. The final offering price is the "clearing price" and all investors are charged the clearing price for their shares. All shares are sold at the one price, even if an investor was willing to pay a higher price. An auction can be beneficial for the issuer--generally it incurs lower costs and it should be able to maximize proceeds. However, the potential lack of aftermarket demand can cause shares offered in this manner to languishi in the stock market which does not bod well for any future offerings it may have planned. But to Google, maybe this circumstance will not happen.
    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.

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