Public Offering
Wall Street “lingo”
IPO underpricing and overpricing
IPOs from abroad
SEC filings
(last updated 31 Jan 13)
"PR Newswire, June 30, 1995, Friday
"THE RATTLESNAKE HOLDING COMPANY,
INC. (Nasdaq: RTTL) announced today that
its initial public offering of Common Stock
commenced on June 29, 1995.
STAMFORD, Conn., June 30 The offering
covered 1,300,000 shares of Common stock
(plus 195,000 additional shares to cover overallotments) at an initial public offering price of
$5.50 per share. The offering was
underwritten on a firm commitment basis by
Auerbach, Pollak & Richardson, Inc.
"Rattlesnake operates a chain of casual dining
restaurants featuring a southwestern theme
under the name "Rattlesnake Southwestern
Grill."
"PR Newswire, June 30, 1995, Friday
Initial public offering?
"THE RATTLESNAKE HOLDING COMPANY,
INC. (Nasdaq: RTTL) announced today that
its initial public offering of Common Stock
commenced on June 29, 1995.
STAMFORD, Conn., June 30 The offering
covered 1,300,000 shares of Common stock
(plus 195,000 additional shares to cover overallotments) at an initial public offering price of
$5.50 per share. The offering was
underwritten on a firm commitment basis by
Auerbach, Pollak & Richardson, Inc.
"Rattlesnake operates a chain of casual dining
restaurants featuring a southwestern theme
under the name "Rattlesnake Southwestern
Grill."
"PR Newswire, June 30, 1995, Friday
Initial public offering?
"THE RATTLESNAKE HOLDING COMPANY,
INC. (Nasdaq: RTTL) announced today that
its initial public offering of Common Stock
commenced on June 29, 1995.
STAMFORD, Conn., June 30 The offering
covered 1,300,000 shares of Common stock
(plus 195,000 additional shares to cover overallotments) at an initial public offering price of
$5.50 per share. The offering was
underwritten on a firm commitment basis by
Auerbach, Pollak & Richardson, Inc.
"Rattlesnake operates a chain of casual dining
restaurants featuring a southwestern theme
under the name "Rattlesnake Southwestern
Grill."
Common stock?
"PR Newswire, June 30, 1995, Friday
Initial public offering?
"THE RATTLESNAKE HOLDING COMPANY,
INC. (Nasdaq: RTTL) announced today that
its initial public offering of Common Stock
commenced on June 29, 1995.
STAMFORD, Conn., June 30 The offering
covered 1,300,000 shares of Common stock
(plus 195,000 additional shares to cover overallotments) at an initial public offering price of
$5.50 per share. The offering was
underwritten on a firm commitment basis by
Auerbach, Pollak & Richardson, Inc.
"Rattlesnake operates a chain of casual dining
restaurants featuring a southwestern theme
under the name "Rattlesnake Southwestern
Grill."
Common stock?
“Effective”?
"PR Newswire, June 30, 1995, Friday
Initial public offering?
"THE RATTLESNAKE HOLDING COMPANY,
INC. (Nasdaq: RTTL) announced today that
its initial public offering of Common Stock
commenced on June 29, 1995.
STAMFORD, Conn., June 30 The offering
covered 1,300,000 shares of Common stock
(plus 195,000 additional shares to cover overallotments) at an initial public offering price of
$5.50 per share. The offering was
underwritten on a firm commitment basis by
Auerbach, Pollak & Richardson, Inc.
"Rattlesnake operates a chain of casual dining
restaurants featuring a southwestern theme
under the name "Rattlesnake Southwestern
Grill."
Common stock?
“Effective”?
“Green Shoe”?
"PR Newswire, June 30, 1995, Friday
Initial public offering?
"THE RATTLESNAKE HOLDING COMPANY,
INC. (Nasdaq: RTTL) announced today that
its initial public offering of Common Stock
commenced on June 29, 1995.
STAMFORD, Conn., June 30 The offering
covered 1,300,000 shares of Common stock
(plus 195,000 additional shares to cover overallotments) at an initial public offering price of
$5.50 per share. The offering was
underwritten on a firm commitment basis by
Auerbach, Pollak & Richardson, Inc.
"Rattlesnake operates a chain of casual dining
restaurants featuring a southwestern theme
under the name "Rattlesnake Southwestern
Grill."
Common stock?
“Effective”?
“Green Shoe”?
Firm commitment?
"PR Newswire, June 30, 1995, Friday
Initial public offering?
"THE RATTLESNAKE HOLDING COMPANY,
INC. (Nasdaq: RTTL) announced today that
its initial public offering of Common Stock
commenced on June 29, 1995.
STAMFORD, Conn., June 30 The offering
covered 1,300,000 shares of Common stock
(plus 195,000 additional shares to cover overallotments) at an initial public offering price of
$5.50 per share. The offering was
underwritten on a firm commitment basis by
Auerbach, Pollak & Richardson, Inc.
"Rattlesnake operates a chain of casual dining
restaurants featuring a southwestern theme
under the name "Rattlesnake Southwestern
Grill."
Common stock?
“Effective”?
“Green Shoe”?
Firm commitment?
Lead underwriter?
Underwriting
Methods
Documentation
Underwriting methods
• Firm-commitment
• Best efforts
• Dutch auction
Investors
UW
(investment bank)
Issuer
Underwriting methods
• Firm-commitment
Investors
Retail
firm
Retail
dept
IPO price
$20.00
Issuer proceeds
$18.60
Spread (7%)
$1.40
Managing UW
20%
Selling concession
60%
Expenses
20%
UW
UW
Issuer
UW
Underwriting methods
• Best efforts
Investors
• Straight
• Mini-max
• All or nothing
UW
(investment bank)
Issuer
Underwriting methods
• Dutch auction
Investors
(sell 1 million shares)
Bid
# shares @ $ price
1
200,000 @ $50/sh
2
150,000 @ $45/sh
3
500,000 @ $40/sh
4
150,000 @ $35/sh
5
300,000 @ $30/sh
6
400,000 @ $25/sh
Investment
bank
Issuer
Underwriting methods
• Dutch auction
Investors
(sell 1 million shares)
Bid
# shares @ $ price
1
200,000 @ $50/sh
2
150,000 @ $45/sh
3
500,000 @ $40/sh
4
150,000 @ $35/sh
5
300,000 @ $30/sh
6
400,000 @ $25/sh
Investment
bank
Issuer
Dutch auction
0.45
Number of Investors
0.4
0.35
0.3
0.25
0.2
0.15
0.1
0.05
0
1
50 99 148 197 246 295 344 clearing
393 442 491 540 589
price
Valuation
Underwriting documentation
Underwriting documentation
Investors
Retail
firm
Retail
dept
UW
UW
Issuer
UW
Underwriting documentation
Investors
Letter of intent
Retail
firm
Retail
dept
UW
UW
Issuer
UW
Underwriting documentation
Investors
Letter of intent
Retail
firm
Housekeeping
Retail
dept
UW
UW
Issuer
UW
Underwriting documentation
Investors
Letter of intent
Retail
firm
Housekeeping
Agreement
among
underwriters
Retail
dept
UW
UW
Issuer
UW
Underwriting documentation
Investors
Letter of intent
Retail
firm
Housekeeping
Agreement
among
underwriters
Retail
dept
UW
UW
Underwriting
agreement
Issuer
UW
Underwriting documentation
Investors
Letter of intent
Retail
firm
Housekeeping
Agreement
among
underwriters
Retail
dept
UW
UW
Underwriting
agreement
Comfort letters
Issuer’s
counsel
Issuer
UW
IPO Pricing
Underpricing
Overpricing
Rattlesnake Holdings
Date
Price
Event
6/28/95
--
SEC makes registration “effective”
6/29/95
--
IPO postponed when UW out of business
6/30/95
$5.50
IPO – 13MM shares / $7.15 MM raised
7/16/95
$6.13
One week after IPO (up 11.5%)
8/14/95
$5.88
Down 6.8%
8/21/95
$5.75
Down 4.5%
9/11/95
$5.50
Back to IPO price
12/29/95
$5.38
Down 2.5%
4/15/96
--
BW says industry overbuilt
6/17/96
--
10Q – sales double, but lost $630,000
7/22/96
$2.75
7/24/95
--
8/25/97
< $1.00
Down 47%
Private placement - $125 MM
Delisted from NASDAQ
“IPO phenomenon”
Market
First day of trading
(avg = +16.4%)
Three years after IPO
(avg = -27.4% compared to mkt)
IPO
IPO Underpricing and Disclosure
JAMES C. SPINDLER
University of Southern California Law School (May 2009)
Using a unique data set, I find that U.S. IPO prospectus disclosure
dramatically affects the degree of first day underpricing of the new
issue, consistent with theories of underpricing as caused by
informational asymmetry.
In particular, a 1 standard deviation increase in positive prospectus
disclosure is associated with almost a third reduction in first day
underpricing.
Further, this may derive from disclosure-related litigation risk: an
increase in negative prospectus disclosure is associated with an
increase in subsequent IPO-related lawsuits, which suggests that
less positive (or more negative) disclosure is a reaction to litigation
risk.
“IPO phenomenon”
Market
First day of trading
(avg = +16.4%)
Three years after IPO
(avg = -27.4% compared to mkt)
IPO
Why underpricing?
(UWs as gatekeepers)
“IPO phenomenon”
Market
First day of trading
(avg = +16.4%)
Three years after IPO
(avg = -27.4% compared to mkt)
IPO
Why overpricing?
(ECMH)
American Depositary Receipts
Reuters Financial Service
July 31, 1996, Wednesday
GRUPO RADIO CENTRO <RCN> OFFERING
PRICED AT $ 7/ADS
NEW YORK, JULY 31 Grupo Radio Centro SA
<RC.MX> said Wednesday the public offering of
3.7 million of its American Depositary Shares
(ADSs) was priced at $ 7.00 per ADS.
The shares were being offered in the United
States and elsewhere outside Mexico by the
company and certain selling shareholders.The
selling shareholders include a Mexican trust
controlled by the Aguirre family, the company's
controlling shareholders, and Clemente Serna, a
director of the company.
Of the total shares offered, the company will sell
about 1.5 million ADSs, the trust will sell 1.1
million, and Serna will offer 1.1 million. Each ADS
represents nine of the company's CPOs, or
Participation Certificates.
The company said it plans to use its proceeds
from the deal to repay a substantial portion of its
debt.
Bear Stearns and BT Securities are the
managing underwriters of the offering, which is set
to close August 2.
Fraud (tort of deceit)
• Material misrepresentation
• Intentional (defendant aware
of truth)
• Reliance (plaintiff relies
reasonably)
• Misrepresentation is cause of
loss
• Damages
Fraud (tort of deceit)
• Material misrepresentation
• Intentional (defendant aware
of truth)
• Reliance (plaintiff relies
What is reasonably)
a “prospectus”?
• Misrepresentation is cause of
loss
• Damages
What is registration statement?
Netflix, Inc.
(Form S-1)
Integrated disclosure
’33 Act
Registration
Statement
[S-1, S-3]
Reg S-K
Reg S-X
’34 Act
Proxy
Statements
[14A]
’34 Act
Periodic
Reports
[10-K, 10Q, 8-K]
The end