The IPO Buzz: IPO Wannabes

Let’s back up a bit. It has been normal practice on Wall Street to call a public offering of a foreign company floating shares for the first time in the United States an IPO even though their underlying securities are traded elsewhere. There are two recent examples -– one this week and the other last week.
What do these deals have in common with the throngs of teen girls flocking to the mall in makeup and outfits that echo the look of their favorite pop star? In both cases, we’re looking at wannabes.
This Week’s Example  
MedQuist Holdings (MEDH – proposed) is a Tennessee-based provider of integrated clinical documentation solutions to over 2,400 hospitals and clinics in the United States. Formed in 1998, MedQuist Holdings has about 6,700 employees. It reported net income of $14.4 million on revenues of $406.9 million for the 12 months ended Sept. 30, 2010.
Its preliminary prospectus says the company plans to price an “initial public offering of our shares in the United States” of about 7.8 million shares at $10 to $12 each. The company will offer about 3.5 million shares and selling shareholders will offer about 4.3 million shares. The deal is expected to trade on Friday, Feb. 4.
That’s the easy part.
Here’s where it becomes confusing.
Before last week, MedQuist was traded in the United States under the symbol of MEDQ. It closed on Friday, Jan. 28, 2011, at $9.22 per share. However, MedQuist is a subsidiary of CBaySystems Holdings, which traded on the AIM under the symbol of CBAY.L. That stock last traded at £6.08, equivalent to US$9.36 per share, on Dec. 24 and was delisted from the AIM on Jan. 27, 2011.
Through a complicated exchange of stock, CBaySystems and MedQuist will become MedQuist Holdings and expect to trade on the NASDAQ Global Market under the new proposed symbol MEDH.
The bottom line is this: Anyone could front run this “IPO” by buying shares elsewhere.
Last Week’s Example
Velti plc (VELT), based in Ireland, is a provider of mobile marketing and advertising solutions that enable brands, advertising agencies, mobile operators and media to implement campaigns by communicating with and engaging consumers via their mobile devices.
Here’s what its prospectus stated: “Prior to this offering our ordinary shares have traded, and immediately subsequent to this offering will continue to trade, on the AIM market of the London Stock Exchange under the symbol “VEL.”
The shares were admitted for trading on the AIM in May 2006.
Fast forward to the present.
On Thursday evening, Jan. 27, 2011, the company priced 12.5 million Ordinary Shares at $12 each in the U.S. capital markets.
Its prospectus stated: “The initial public offering price is $12.00 per ordinary share.”
The shares soared in the aftermarket, closing on Friday at $15.58, UP 29.8 percent for its offering price. Interestingly enough, the AIM-listed stock closed the same day at 880.45 pence, or equivalent to US$12.69 per share.
Welcome to Wall Street, where anything can happen.
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.