public offering

Public Offering

Wall Street “lingo” IPO underpricing and overpricing

IPOs from abroadSEC 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 over-allotments) 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     

"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 over-allotments) 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." 

Initial public offering?

"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 over-allotments) 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." 

Initial public offering?

Common stock?

"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 over-allotments) 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." 

Initial public offering?

Common stock?

“Effective”?

"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 over-allotments) 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." 

Initial public offering?

Common stock?

“Effective”?

“Green Shoe”?

"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 over-allotments) 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." 

Initial public offering?

Common stock?

“Effective”?

“Green Shoe”?

Firm commitment?

"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 over-allotments) 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." 

Initial public offering?

Common stock?

“Effective”?

“Green Shoe”?

Firm commitment?

Lead underwriter?

Underwriting

Methods

Documentation

Underwriting methods

Issuer

UW(investment bank)

Investors• Firm-commitment• Best efforts• Dutch auction

Underwriting methods

Issuer

UWUW UW

Retail firm

Investors

Retail dept

• Firm-commitment

IPO price $20.00

Issuer proceeds $18.60

Spread (7%) $1.40

Managing UW 20%

Selling concession 60%

Expenses 20%

Underwriting methods

Issuer

UW(investment bank)

Investors• Best efforts• Straight• Mini-max• All or nothing

Underwriting methods

• Dutch auction (sell 1 million shares)

Issuer

Investmentbank

Investors

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

Underwriting methods

• Dutch auction (sell 1 million shares)

Issuer

Investmentbank

Investors

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

0

0.05

0.1

0.15

0.2

0.25

0.3

0.35

0.4

0.45

1 50 99 148 197 246 295 344 393 442 491 540 589

Valuation

Nu

mb

er

of

Inv

es

tors

Dutch auction

clearingprice

Underwriting documentation

Underwriting documentation

Issuer

UWUW UW

Retail firm

Investors

Retail dept

Underwriting documentation

Issuer

UWUW UW

Retail firm

Investors

Retail dept

Letter of intent

Underwriting documentation

Issuer

UWUW UW

Retail firm

Investors

Retail dept

Letter of intent

Housekeeping

Underwriting documentation

Issuer

UWUW UW

Retail firm

Investors

Retail dept

Letter of intent

Housekeeping

Agreementamong

underwriters

Underwriting documentation

Issuer

UWUW UW

Retail firm

Investors

Retail dept

Letter of intent

Housekeeping

Agreementamong

underwriters

Underwriting agreement

Underwriting documentation

Issuer

UWUW UW

Retail firm

Investors

Retail dept

Letter of intent

Housekeeping

Agreementamong

underwriters

Underwriting agreement

Comfort letters Issuer’s counsel

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 Down 47%

7/24/95 -- Private placement - $125 MM

8/25/97 < $1.00 Delisted from NASDAQ

“IPO phenomenon”

IPO

Market

First day of trading(avg = +16.4%)

Three years after IPO(avg = -27.4% compared to mkt)

IPO Underpricing and DisclosureJAMES 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”

IPO

Market

First day of trading(avg = +16.4%)

Three years after IPO(avg = -27.4% compared to mkt)

Why underpricing?(UWs as gatekeepers)

“IPO phenomenon”

IPO

Market

First day of trading(avg = +16.4%)

Three years after IPO(avg = -27.4% compared to mkt)

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

reasonably)• Misrepresentation is cause of

loss• Damages

What is a “prospectus”?

What is registration statement?

Netflix, Inc. (Form S-1)

Integrated disclosure

’33 ActRegistration Statement[S-1, S-3]

’34 ActProxy

Statements[14A]

Reg S-K

Reg S-X

’34 ActPeriodicReports

[10-K, 10Q, 8-K]

The end