Is Any Bank Not Taking Part In The Google IPO?
from the can't-be-left-out dept
Everyone on Wall Street has been battling to underwrite the expected Google IPO this year, and now it’s being reported that Morgan Stanley and Goldman Sachs have won out to be the lead underwriters. However, it sounds like Google didn’t want to turn anyone down, as Citigroup, CSFB and JP Morgan Chase are also in the game. Over on the west coast, they’ve signed up Thomas Weisel Partners and WR Hambrecht. Did anyone get left out? The inclusion of WR Hambrecht was rumored earlier when some bankers feared Google might dare go with a Dutch Auction format for their IPO. However, it sounds like this isn’t going to be a Dutch Auction at all (not with all those other underwriters involved), so we can expect the usual shenanigans of selling to friends, and a first day pop that the media and clueless investors will love – but which really means the folks at Google left money on the table.
Comments on “Is Any Bank Not Taking Part In The Google IPO?”
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no–what it means is Google left money on the table. The folks at Google are getting money for their table. 😉 Do you think the CFO makes more money with a traditional IPO or a dutch auction?
That’s the fundamental conflict of interest. People are always going to pick personal wealth over their company’s wealth; it just becomes more apparent during an IPO where it’s a type of zero sum game between the company’s money and the people who work at the company’s money.
"Money on the table"?
What underlying assumptions are you making when you argue that Google will “leave money on the table” by using a traditional IPO? I would guess that you’re assuming that 1) the first day’s trading price is a measure of “true value”; 2)investors already know the true value of the shares, without having to devote any time or effort to evaluating the stock; 3) the value is independent of the selling method (since everyone already “just knows” the value without reading the prospectus or attending the road show); and thus 4) an auction, open to everyone, always results in “perfect pricing”, since people simply bid the true value that popped into their heads without any effort on their part, and they continue to believe in that value regardless of what anyone else does.
If you don’t agree with these assumptions, then there’s little reason to expect auctions to work well. Under more reasonable assumptions, IPO auctions lead to overpricing because free riders bid ridiculously high prices in order to be first in line for the shares. This is what has happened in practice around the world.
The term “leaving money on the table” commonly refers to what is considered a good long term business practice – making sure that all parties to a deal get something out of it. You seem to be saying that Google should be greedy and use a “Dutch” auction, which is likely to overprice the shares. In the short run it looks good to trick people into paying too much, especially since they’re practically begging for the chance to overpay, but is that really a good long term business practice for Google?