Goldman Sachs’ (GS) name appears on the most prestigious place on three of the prospectuses -– the left-hand side. The name is on the right-hand side of another.
CBOE Holdings (CBOE-proposed), the Chicago-based financial exchange, is considered the “odds on” favorite by the IPO handicappers. The deal has attracted a lot of media attention. People are looking at the past and it’s fanning the flames of high expectations. That’s understandable, considering the track record of the other financial exchanges that have gone public:
- The CME Group (CME) went public as Chicago Mercantile Exchange in December 2002 at $35 per share. It started trading at $39 and closed its opening day at $42.90 — UP 22.6 percent from its initial offering price. On Friday, June 11, 2010, the stock closed at $302.45 — UP a whopping 764.1 percent from its offering price.
- IntercontinentalExchange (ICE) went public in November 2005 at $26. It also started trading at $39 per share and closed its opening day at $39.25, UP 51 percent from its initial offering price. On Friday, June 11, 2010, the stock closed at $123.41 — UP an amazing 374.7 percent from its offering price.
- International Securities Exchange went public in March 2005 at $18 per share. It started trading at $27.75 per share and closed its opening day at $30.40, UP 68.9 percent from its initial offering price. In August 2008, it became a subsidiary of Direct Edge ECN, a privately owned stock exchange owned by Knight Capital Group (KCG), Citadel Investment Group and you might have guessed it — Goldman Sachs.
Nevertheless, some investment professionals have raised concerns over the CBOE and its IPO. Here they are:
Valuation
Morningstar (MORN) issued a report stating: “Estimates that CBOE has a stand-alone fair value of $26 per share, after offering proceeds, special dividend payments, and legal settlements are finalized.” On CNBC’s “Mad Money” James Cramer said, ““Pay no more than $28 (for CBOE).” Its pricing range is $27 to $29 per share.
Pricing
The major complaint against this year’s IPO calendar has been overpricing deals. The 53 IPOs priced year-to-date, according to the U.S. Securities and Exchange Commission filings, have an average opening-day gain of 3.71 percent. That’s well down from an average gain of 27.8 percent for over 1,600 IPOs priced from January 2000 through December 2009.
The CBOE is expected to price 11.7 million shares in a price range of $27 to $29 each. The IPO handicappers expect some money will be left on the table at this range. However, should Goldman Sachs push the envelope and price this deal above range, it could be a different story.
Concerns about Goldman Sachs
Over the past nine months, Goldman Sachs has had some notable flops by increasing offering terms on reportedly “hot issues.” They were:
- Shanda Games (GAME) priced 83.5 million American Depositary Shares at $12.50 each in September 2009. The deal had been increased by 20 million shares from 63.5 million shares. That swept a lot of aftermarket orders off the table. This “hot issue” closed its opening day at $10.75, DOWN 16.3 percent its initial offering price. Shanda Games closed Friday, June 11, at $5.27, DOWN 57.8 percent from its offering price.
- Metals USA (MUSA) priced 11.4 million shares at $21 each in April 2010. The deal had been increased from 10.5 million shares at $18 to $20 each. Once again, the aftermarket orders had been swept off the table. This “hot issue” closed its opening day at $19.20, DOWN 8.57 percent its offering price. Metals USA closed on Friday, June 11, at $14.82, DOWN 29.4 percent from its offering price.
- Niska Gas Storage LLC (NKA) priced 17.5 million shares at $20.50 each in May. The deal had been increased to $20 to $22 per share up from at $19 to $21. Down went the gunner and then the gunner’s mate. This “hot issue” closed its opening day at $19.10, DOWN 6.83 percent from its offering price. Niska closed Friday at $18.11, DOWN 11.7 percent from its offering price.
CBOE Holdings expects (at press time) to price 11.7 million shares at $27 to $29 each on Monday evening, June 14, to start trading on Tuesday.
As they say at the racetracks, anything can happen – just like on Wall Street.
Disclosure: Neither the author nor anyone else on the IPOScoop.com staff has a position in any stocks mentioned, nor do they trade or invest in IPOs. The author and IPOScoop.com staff do not issue advice, recommendations or opinions.