The IPO Buzz: IPO Turkeys on Parade

About four miles south, the IPO Parade began in the Trinity Church graveyard, wound its way down Wall Street and ended in the East River. That parade, unfortunately, was full of spills. And turkeys? You bet, but they were anything but cute. Blended in to that unappetizing picture were financial headlines that misrepresented the recent General Motors (GM) IPO. Not too bad for a shortened week.
By the time the Thanksgiving week IPO Parade ended, four deals had been priced, according to the U.S. Securities and Exchange Commission’s filings. This excluded a “blank check” unit offering. Three of the four were reduced in size, much like a sale at Macy’s for unwanted merchandise, and investors didn’t exactly snap up these “bargains.” The single winner (Anacor Pharmaceuticals ANCA) closed on Friday with a gain of just 9 cents per share above its initial offering price.
Cut a Deal – Cancel my Order
One question swirling in the markets recently has been whether to take a chance for an opening-day pop on an IPO that’s priced below its original filing terms.
Let’s go to the numbers.
Year-to-date, 133 IPOs have been priced (excluding 11 unit offerings). Sixty-one offerings had to be reduced to find enough buyers to get the deal out the door. Their opening-day numbers should answer the question about taking a shot on a dead-cat bounce. In most cases, it doesn’t happen.
Of the 61 IPOs priced below range, 24 closed their opening day as winners, 30 closed as losers, seven were unchanged and the average gain for all 61 was 0.08 percent – not even a tenth of one percent.
It’s a case of ECON 101 – supply versus demand.
A larger supply than demand – cut the price. And in the IPO market, this usually siphons the aftermarket orders out of the deal and there’s no opening-day pop.
Let’s move forward and take a look at this year’s other offerings. Seventy-two IPOs have been priced within their filing range and above. Of that number, 56 closed their opening day as winners, 14 were losers, two were unchanged and the average gain for all 72 was 16.4 percent.
It’s time to move on.
Don’t Believe the Hype
On Nov. 18, GM priced 478 million shares of common stock at $33 each to raise $15.7 billion.
The financial press heralded the deal as the second-largest U.S. IPO ever. That was true. Only the March 2008 IPO of Visa (V) was larger. Visa offered 406 million shares at $44 each to raise $17.9 billion. The company did exercise its over-allotment option (a/k/a “green shoe”), which increased the amount to $20.5 billion.
On Nov. 18, in a separate offering, GM priced 87 million shares of 4.75% Series B Mandatory Convertible Junior Preferred Stock at $50 each to raise $4.35 billion. The preferred stock trades under the symbol of GM.Pr.B.
Fast forward to Nov. 26, “PRNewswire-FirstCall” reported General Motors announced its underwriters had exercised the “green shoe” and purchased an additional 71.7 million shares of common stock. That raised the IPO to $18.1 billion, UP from $15.8 billion.
Combined with the Nov. 26 news release was the announcement GM had exercised the “green shoe” for its preferred offering and underwriters purchased an additional 13 million shares. That raised the preferred offering to $5 billion, UP from the original $4.35 billion.
Each deal was a stand-alone offering – not a combined one.
Sorry, lads and lasses of the financial media, but exercising the “green shoe” options on both the common stock and the preferred stock does not inch the size of the GM IPO into first place.
Find the Turkey Egg
Now back to last week’s IPO Thanksgiving Day Parade. It had to be an embarrassing moment for the officers of one of the IPOs that made its debut.
On Wednesday, Nov. 24, executives and guests of SYSWIN (SYSW), a real estate services provider in China, stepped up to the balcony of the New York Stock Exchange and rang the closing bell to celebrate the company’s initial public offering. The deal had laid a turkey egg.
The IPO closed its opening day at $6.20 per share, DOWN 11.4 percent from its initial offering price of $7 per share. That turned out to be one of the year’s sharpest opening-day losses.
SYSWIN priced 9.6 million shares at $7 each, DOWN from its original filing of 12 million shares at $9.25 to $11.25 each.
This brings us back to the “dead cat” bounce – on average, there is none.
Solo Act
This week’s IPO calendar kicks off December with one deal.
FXCM (FXCM – proposed) is a New York-based online provider of foreign exchange trading and related services. The company plans to price 15.1 million shares at $13 to $15 each on Wednesday evening, Dec. 1, to trade on Thursday, Dec. 2.
FXCM’s industry has been a market laggard over the last 52 weeks.
The U.S. Financial Services Industry:
On Nov. 26, 2010, the Dow Jones U.S. Financial Services Index (DJUSFI) closed at 349.12, UP 0.4 percent from 347.66 on Nov. 27, 2009. That’s underperforming The Nasdaq Composite Index (.IXIC), which closed on Friday at 2,534.56, UP 18.5 percent from 2,138.44 on Nov. 27, 2009.
Disclosure: Neither the author nor anyone else on the staff has a position in any stocks mentioned, nor do they trade or invest in IPOs. The author and staff do not issue advice, recommendations or opinions.