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
    Ann, 21 Feb 2004 @ 3:45pm

    Re: Google and an OpenIPO

    The clearing price is the highest price at which all of the shares can be sold. This price is not always used by Hambrecht. Auctions that price below market-clearing are known as "dirty" auctions, or as "leaving something on the table", and they've been used in the U.K., France and other countries.
    The first OpenIPO Hambrecht auction to price below market-clearing was, 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?

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