The IPO Buzz: Dutch Mint and Chinese Puzzle

Interactive Brokers Group (NASDAQ: IBKR) priced 40 million shares at $30.01 each, minting a cool $1.2 billion for the issuer. That was more than double what had been hoped for. The original filing was for 20 million shares at $23 to $27 each to raise $500 million. On May 1, it was increased to 34.5 million shares at $27 to $31 each to raise $1 billion.
There were two firsts with this offering — and an eye-catching second.
{mosgoogle}Public Disclosure
The results of the bidding were published. This is routine in Europe, where the Dutch auction IPO offering system has been in place for decades. But this was the first time it’s happened in the United States. Here was what the press release revealed about the Interactive Broker offering:
  • The auction clearing price was $33 per share. (That was the highest price it took to sell all 40 million shares.)
  • The deal was priced at $30.01 per share. In other words, the offering price wound up being about 10 percent below its clearing price.
  • There were 8,282 successful bids totaling 145,514,807 shares. (The offering could have been increased by another 105.5 million shares, had the clearing price been lowered to $30.01 per share.)
  • By keeping the IPO’s size at 40 million shares, each winning bid received an allocation amounting to 27.5 percent of its indication of interest.
Bargain-basement Fee
The Placement Agency Fee (as opposed to an underwriting fee) totaled $22.5 million, according to the prospectus. That is 1.8 percent of the amount raised — a record low.
Interactive Broker’s $1.2 billion Dutch auction was the second-largest ever. The largest was the $1.67 billion Dutch auction of Google (NASDAQ: GOOG) on Aug. 18, 2004.
But there was more to the week than Interactive Broker’s Dutch mint of a deal.
Yin and Yang from China
Bankers gave us two IPOs from China — Acorn International (NYSE: ATV), which is essentially the home shopping network, or QVC, of China, and Qiao Xing Mobile Communication Co. Ltd.(NYSE: QXM), a Beijing-based company that makes and sells cell-phone handsets using the GSM wireless standard. One popped. The other flopped. But there were reasons each performed as it did.
Since the beginning of 2005, there have been 23 China-based companies to float their IPOs in the U.S. capital markets, according to U.S. Securities and Exchange Commission filings. There is a strong relationship between the winners and the losers.
The winners:
Among the winners were (NASDAQ: BIDU), known as “China’s Google,” UP 370.2 percent from its initial offering price; (NASDAQ: CTPR), a leading Chinese travel agency, UP 298.8 percent from its offering price, and New Oriental Education & Technology Group (NYSE: EDU), a provider of educational services, UP 216.7 percent from its offering price.  
What’s the winner’s secret? Each of these companies dominates its industrial sector.
Acorn International fits into this category. It’s the largest TV home shopping company in China. Its infomercials market cell phones, jewelry and countless other consumer goods.
Bankers priced 7.7 million shares of Acorn International at $15.50 each on Wednesday evening. That was above its filing range of $12.50 to $14.50 per share. The IPO started trading on Thursday and closed its opening day at $21.50. It finished the week at $25.69, UP 65.7 percent from its offering price.
The losers:
Among the losers were Linktone (NASDAQ: LTON), a Shanghai-based provider of ring tones, short messaging services, games and other wireless services to mobile phone users, DOWN 75.7 percent from its initial offering price; Ninetowns Internet Technology Group Co. Ltd.(NASDAQ: NINE), a Chinese provider of online solutions to streamline the import/export process, DOWN 62.6 percent, and Semiconductor Manufacturing International Corp.(NYSE: SMI), a Shanghai-based integrated circuit manufacturing services provider, DOWN 59 percent from its offering price.
Each of these Chinese companies does NOT have a dominant position in its industrial sector.
Qiao Xing Mobile Communication Co. fits into this category.
Bankers priced 13.3 million shares of Qiao Xing Mobile at $12 each on Wednesday evening. That was below its filing range of 16.7 million shares at $11 to $13 each. The IPO started trading on Thursday and closed its opening day at $11.31. It finished the week at $10.40, DOWN 13.3 percent from its offering price.
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