Red Hat IPO

[William S. Lear]

On Saturday, August 14, 1999 at 11:55:52 (-0400) Doug Henwood writes:
>W. Kiernan wrote:
>
>>So couldn't they have asked, say, $21 a share instead of $14?
>
>There's an art to pricing IPOs. You want the price high enough so the 
>issuers (and their creditors and venture capitalists) can get a good 
>haul, but it's good PR to have a nice postmarket pop (good press from 
>good stock performance is an important part of the dot.com business 
>strategy), and the bankers get to reward their favorite clients with 
>an instant profit.
>
>Lister Jordan Hayes is at the cutting edge of IPO pricing - Jordan?

Jordan and Doug can correct me if I am wrong, but the IPO price is
settled long in advance is it not?  I thought the way this worked was
to decide how much cash you want to raise in the IPO and then you
basically open up bids to investment bankers and others for purchase
of the shares.  You then sort all of the bids by price offered and run
down the list until you have enough offers to meet your cash target.

What I don't understand is what happens next.  Is the average price
then used as the "IPO" price?

Also, the bit about v.c. folks getting a good haul (at least on IPO
day) is a bit wrong, isn't it?  The real haul the v.c. crowd gets will
come months (usually 6, I think) later, when the "lock-up" period
(prohibition against selling) the i-bankers have mandated expires,
correct?  IPO's are usually done with stock newly-issued just for the
IPO, the cash for which goes directly into the coffers of the company.

I believe the art of pricing the shares on IPO day (here's where the
gap in my understanding between the subscription process and IPO shows
up again) is heavily dependent on mass psychology.  Today, opening
prices of $10-$15 are considered "proper".  Nobody wants to purchase a
share (on opening day) for $236...

Bill