When I wrote last weekend about Cash America International (CSH – NYSE), the stock was trading at $41.76. On Friday, the stock closed at $48.08, a gain of 15%. In the post, I wrote that the shares had the potential to rise “15%-20% over the coming year.” I definitely didn’t think it would get the entire gain in one week. So what happened? Continue reading
Case closed. I first wrote about Zipcar (ZIP) on April 19, 2011 when the stock traded north of $26. Then I revisited the stock in July of 2011 when the stock was trading at $22.51 (after having touched $19.35). In the post, I stated that “While I would applaud the fact that the underwriters’ analysts came out of the gates with “Neutral” ratings. I don’t think they went far enough”. Today, almost 18 months later, this hit the wires: “Avis Budget Group to Acquire Zipcar for $12.25 Per Share in Cash”. The companies involved touted the deal for its “49% premium over the closing price on December 31, 2012”; however, the release failed to mention that ZIP went public less than two years earlier at a price of $18. By my math, that means the take-out price was 31.9% BELOW the IPO price. Not to mention, the stock had a bubblicious IPO stock pop and opened up at $30 – this means the average investor is down far more than 32%. If you shorted the stock when I first wrote about it, you gave back some of your gains with today’s pop, but you’re still up over 53% (I would hope you took gains long ago – pigs get slaughtered!). What happened? Continue reading
I was trying REALLY hard to avoid getting involved here, but I’ve seen far too much naive speculation and finger-pointing that Linkedin’s bankers massively underpriced the issue and that they should have done an auction (“just like Google did in 2004!”).
If you haven’t already, read The Epicurean Dealmaker’s spot-on post about how IPO bookrunning and underwriting works for a firm like Linkedin.
Let me make this perfectly clear: Investment banks do not set the ultimate price for IPOs; the market does.
I’m probably one of Linkedin’s ideal users/customers: I’m a white collar professional looking to expand my professional network, get a (better) job, and promote a growing website/business. Yet I utterly and passionately despise Linkedin. It clogs my inbox with reminders that someone with whom I already know and communicate wants to “connect” on the network. I don’t need to connect with my real/former/quasi-friends on Linkedin, that’s what Facebook is for. I’ve never had any semblance of success “networking” my way to a job or even interview using Linkedin, although I suppose that’s because I’m neither 1. in/looking for a sales job and 2. not a shameless “connection” whore; I understand the unspoken social contract that there’s a difference between reaching out and hustling for an interview, and annoying those very same people who have the position/influence to get me one.
I could keep going like this forever, but to make it a little more organized, let’s just run through a few of them, in no particular order. If you can think of any that I missed, please post in the comments!
After being a loyal lessee for six years, I turned in the keys to one of my few luxuries after the lease of my second car expired. As a resident of Manhattan, I paid the “bargain” rate of $400 per month to park the vehicle which, after 39 months, had all of 21,000 miles. When you add up my lease payment, parking and insurance, I was paying $1,500 a month before I even put the key in the ignition. Why did I effectively “put” the car back to the company? One word: Zipcar Inc. (NASDAQ: ZIP).
So you weren’t part of “friends and family” and you didn’t get allocated shares in the Zipcar IPO. Is now th time to jump in? Continue reading for the answer. Continue reading
Glencore is the most powerful, connected commodities trading firm on the planet. Since many valuable commodities are located in politically unstable parts of the world, earning, and more importantly retaining that honor necessitates that Glencore engage in some possibly questionable business practices, some (many?) of which might just happen to violate one or more international laws or sanctions. Running such operations as a private, closely-held firm based in a quiet corner of Switzerland is hard enough, but doing so as a soon-to-be publicly-traded company in both London and Hong Kong may provide near impossible given the much higher visibility and scrutiny that comes with a public listing.
I tweeted this earlier but for those who missed it, let me throw out a few reasons why I don’t buy the “hype” behind the GM IPO/”successful” restructuring/turn-around, in no particular order.
- Government still has huge role. As Michael Steinhardt said on CNBC yesterday, “I don’t think one should be a long-term holder of Government securities, especially equity securities.”
- Still a bit opaque. Sure, they’ve disclosed alot of the things I had questions about (pensions, etc) but its not only a lot to process, with so many moving parts – many of which could turn into problems down the road – that I’d be hesitant to buy into the story (stock) for anything other than any IPO pop + subsequent pop from index purchasing. For more, see this great post I somehow totally spaced on (thanks @rmsnickers!) from Francine McKenna. Preview: Unaudited financials are just a wee bit of a red flag.
- GM’s early leadership position in China is under alot of pressure. Buick is a big draw there, but rest assured, Volkswagen and GM’s other competitors won’t let them enjoy that position for long.
- A successful IPO does not a successful reorg/turnaround make. GM’s employee count is down about 75,000 from pre-bankruptcy and they’ve closed about a dozen plants, but as I said above, its a huge, sprawling company in an intensely competitive industry. Throw in a history of bureaucratic bloat, questionable (at best) product design and basically every aspect of the company from the past 30-ish years and I’m nowhere close to buying into the lean & mean story the company, its underwriters, and the media would have you believe.
- The Chevy Volt is doomed for failure. I’d just as soon chalk up all the recent attention from the Automotive Media up to IPO-related pre-excitement rather than any realistic expectation that it’ll be a commercial success. Without heavy Government subsidies (here we go again with that Government thing again), no one would even consider buying it, save for the most economically ignorant tree-hugging types.
- Only time will tell. Not nearly enough time has passed to see this story play out. I seriously advice ignoring anyone who claims otherwise.
Remember, this is just a very short take, each of these bullet points can easily be its own post (if not several).
In part I, I explained that even if the online/discount brokers (that serve “everyman,” apparently) had gotten allocated GM IPO shares, no matter what Treasury said about every American having access to buy, in practice, it would never go down that way because of the way brokerage firms go about allocating shares. I may be wrong, but as far as I know, Treasury (besides threatening not to include an underwriting firm in the deal) has no influence over how underwriters allocate shares (someone please enlighten me as to any other authority Treasury has, if any. Thanks).
Now, I really don’t have anything revolutionary to add here and for the purposes of brevity I’m over-simplifying, but I just wanted to add another thought or two. Even if Etrade, Schwab, and Ameritrade (major advertiser on CNBC, which I suspect may have a not-insignificant part in the network’s annoyingly persistent coverage of this issue) received allocations of IPO shares, 1. Not every Tom, Dick, and Harry has a brokerage account nor knows how to open one, 2. even if they did, there’s still the little issue of suitability. On this 2nd point, generally, equity IPO’s are considered to be amongst the least risky of syndicate trades, at least compared to secondary’s, structured products, etc (but certainly not considered risk-less, not by any stretch of the imagination!) Suitability may vary from firm-to-firm and even from issue-to-issue (e.g. buying an equity IPO from a bankrupt company still married to the Government may require investors clear a higher threshold than a “vanilla” IPO), as firms seek to CYA.
So, the first impediment to “everyone” having access to the GM IPO: brokerage firms choose to whom they allocate shares, not treasury. Second: even if Treasury was able to influence Brokers’ allocation methodology (doubtful considering the institutional/HNW client outrage that’d result), firms can’t just sell a risky issue to any schmuck with an account (or else they’d get sued/crushed with arbitration claims) into next century if/when things go “wrong” (e.g. the stock goes bankrupt at some point down the road).
The last thing I want to discuss is that even if Treasury HAD explicitly stated verbatim that every American will be able to buy into the GM IPO (and I’ve yet to see any evidence they did), putting the above aside, why do we think EVERY American should be able to buy the IPO? 1. 40% of Americans don’t have any net Federal income tax liability (i.e. 40% of people don’t pay any Federal taxes), 2. why does anyone think just because someone pays Federal taxes they should be automatically qualified to buy-into a questionable IPO? Whats driving Joe and Jane Outraged Investor’s motivation to get into the IPO? Does the average retail investor understand dynamics of public offerings, the auto industry, index/fund “frontrunning,” pension accounting, turn-arounds, or any of the relevant factors affecting the performance of the issue? Methinks not.
So, instead of all of the (mostly) MSM coverage discussing the outrage from “everyday investors” why don’t we get some insight into why these ‘folks want to get into the deal in the first place. I’ll bet that the responses won’t be much more informed than the testimony given by the NTC employees about their “Robo-Signing” duties (see my Thoughts & Good Reading post from Monday).
Not only do investors need to be protected from predatory practices, they need to be protected from themselves (and firms need to protect themselves from frivolous lawsuits resulting from “improper” conduct and the like).
Securities Law types, brokers, advisors, etc please feel free to weigh in on the issue.
Just a warning, this is a rant, and as such, it is going to be stream-of-consciousness and likely rambling and at times borderline incoherent. That being said, here we go:
The argument today on CNBC (and several other outlets I saw in my twitter stream I don’t have the inclination or patience to read) from several pundits, flapping heads, etc seems to be that because “taxpayers” (if you don’t know why I put that in quotes please stop reading now) bailed out GM, all of that cohort should be given access to the IPO. In the immortal words of the Geico Caveman: “fuh, what?!”
Let me get this straight. Apparently small retail investors are outraged (or at least their self-proclaimed advocates are) that they can’t retain/increase their exposure to the clusterf*ck that is GM? Gluttons for punishment they be, no? My thoughts on GM’s financial, strategic, and operational condition aside, what’s the rationale behind this non-sequitur? There’s a missing link in this argument that I can’t for the life of me comprehend. Given A (…) B seems to be the logic as far as I can tell, similar to the
1. Steal underpants
argument. Seriously, someone please enlighten me why every American with a brokerage account deserves an allocation of GM IPO shares because I really just.don’t.get.it.
Now, on to how things actually work in the brokerage industry because MSM apparently doesn’t realize this. At big brokerage firms (and I imagine the same is true at smaller shops as well), syndicate deals (stock, bond, structured products, whatever) are allocated to clients based on several factors, captured by a firms internal scoring, itself based on factors like how much commissions a client generates, the size of the account, and past participation in syndicate deals. Now, if Treasury doesn’t feel it necessary to include the discount brokerages (Schwab, E-trade, Ameritrade, etc) in the underwriting group, perhaps there’s sufficient demand among clients of the other 15-ish underwriters (including the 2 biggest brokerage firms in the country MSSB and BAML) to sell the deal at a fair price (leaving the definition of that term aside for a second). Just sayin…
Now I’m not saying a Dutch Auction wouldn’t have been a good idea (it likely would have, politically and financially), but there seems to be way too much hate for how this GM IPO is being sold.