by
Ronald
on Sat 07 Aug 2004 03:55 PM EDT
A lot of articles were written this week about the much-awaited Google IPO. The feeling among most Wall Street insiders is that the IPO might be delayed due to concerns about the process, securities regulation issues and the high initial asking price, which might be turning off some fund managers. On August 5th, the company recognized that it neglected to account for 23.2 million shares of common stock and 5.6 million of stock options that were issued to various employees and consulants. There were some articles that claimed that Google was making offers to purchase that stock back, but at a significant discount to the price set on its IPO filing (in the $108 to the $135 range).
Jim Jubak (a respected columnist from MSN Money Central) goes as far as claiming that Wall Street wants Google to fail. His article does a great job at explaining how a Dutch-style auction works and why some Wall Street investment bankers might not be happy with the Google approach:
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But Wall Street has survived low commissions on high-profile IPOs before. What really bothers the investment bankers is the worry that this deal might spell the end of the very lucrative IPO game.
Take their word for it
Here’s how the game works: A company seeking to go public lines up an underwriting team that promises to get the best price it can for the piece of the company that will be sold to the public. The underwriting team gauges that price by holding a road show, where institutional investors hear the company’s pitch and tell the underwriters how interested they are and how many shares they’d be inclined to buy at what price. Using time-honored formulas, the underwriters report back to the company with a price and a size for the offering.
It’s difficult for the company to judge demand itself, and there is no formal mechanism for setting a price that would clear the market for all shares to be offered. In practice, most companies take the underwriters’ word. The company is, after all, paying the underwriters for their expertise.
Anyone who remembers the post-bubble scandals and lawsuits, however, knows that this system is extremely vulnerable to abuses. |
Another point that is upsetting some people is that Google (which will trade in the Nadsaq under the symbol GOOG) is offering Class A shares, whereas its top execs and founders will hold large blocks of Class B shares, which entail 10 votes each.
But does the Dutch style auction mean that the common investors will be able to grab a piece of the pie? Perhaps, but that is not likely, according to another MSN article by Kim Khan. According to the article, chances are that Google might not go that route, since a Dutch auction IPO could end up pricing Google shares at a huge valuation. So in that case, it might be difficult for the average investor to get a shot at Google's stock (even by having an account with the lead underwriters, Credit Suisse First Boston and Morgan Stanley - chances are only the top notch VIP clients will get a shot at it). High demand and a limited supply of stocks might prevent other underwriters of ensuring there will be shares left for common private investors.
Finally, there is the topic of valuation, which warrants another entry altogether. But I will pass on a link of a website (John Battelle's Searchblog) that has a useful valuation model in Excel format about Google's valuation. It is useful because of its simplicity, and how it allows one to tweak forward revenues and margins and the effect on the stock price. The model comes as a courtesy of CNBC correspondent Cory Johnson.
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NTT (NYSE:NTT), the Japanese telecom giant, says it is releasing today the first 3G phone that can also serve as a "mobile wallet" for making purchases and for performing ATM withdrawals and credit card purchases. 
The F900iC model utilizes a smart card to work with its FeliCa mobile wallet service, which empowers subscribers to use the mobile's near-field wireless technology to carry out various transactions. The phone works with DoCoMo's 3G service, and also requires a subscription to NTT's i-mode service.