SOURCE: FORBES
IPO Dutch Auctions Vs. Traditional Allocation
Ari Weinberg, 05.10.04, 3:00 PM ET
NEW YORK - Business as usual just doesn't fly at Google. And now the Mountain View, Calif.-based Internet company is trying to export that mantra to Wall Street.
Google's $2.7 billion initial public offering, to be priced through an electronic auction, will test the large-scale viability of a so-called Dutch auction, designed to both democratize IPO share allocation and afford companies and early investors the best price for their shares.
While Google's offering is being underwritten by Morgan Stanley (nyse: MWD - news - people ) and Credit Suisse First Boston, a unit of Credit Suisse Group (nyse: CSR - news - people ), these types of public offerings have been a specialty of San Francisco-based WR Hambrecht, which holds a patent on the process for its OpenIPO.
"It's definitely the biggest story here," says Ryan Jacob, manager of the $69 million Jacob Internet Fund (JAMFX). Jacob, whose fund has not yet participated in an OpenIPO, says investors must be mindful that "the auction process is designed for the seller to get the best price."
In a Dutch auction, a company reveals the maximum amount of shares being sold and sometimes a potential price for those shares. Investors then state the number of shares they want and at what price. Once a minimum clearing price is determined, investors who bid at least that price are awarded shares. If there are more bids than...
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