Aiming to Auction Its Way To a More 'Inclusive' IPO
Google Inc., which runs the world's most popular Internet search engine, filed to raise as much as $2.72 billion in its IPO.
(Noah Berger -- Bloomberg News)
_____Live Online_____
•
Transcript: Leslie Walker will be online to answer reader questions about Google's IPO and its implications for the broader technology sector.
Under one method, the total number of shares offered would be divided by the number of shares represented in successful bids. That calculation would determine a "pro rata allocation percentage." Successful bidders would receive shares based on the pro rata allocation percentage multiplied by the number of shares they requested.
Under the second method, described as "maximum share allocation," successful bidders would receive shares based on an algorithm designed do give those with small share requests the full amount and those with larger bids no more than a certain number.
"This is designed in quite a complicated way," Ljungqvist said. If it fails because investors are confused or leaves investors dissatisfied with the way in which shares are allocated, it will be a long time before anyone else attempts the auction approach to IPOs, Ljungqvist predicted. Auction sales of IPO shares have not caught on in the past, he said.
But overall, Ljungqvist praised Google for employing the auction, saying if successful it could reduce the advantages major investors have had and single-handedly sweep away many of the IPO abuses seen on Wall Street in recent years.
Those abuses included Wall Street firms setting IPO share prices artificially low and allocating them to favored executives at firms that steer other business their way.
The low prices then allowed for big one-day price "pops" for hot IPOs. Wall Street insiders could then sell their IPO shares on the open market, netting big profits and leaving the larger investing public holding the bag if the share price dropped.
While the auction is designed to open up the IPO to individual investors, Google went to great lengths in its filing to warn of potential risks. The company noted that the share price could drop significantly on the open market and said only those interested in owning Google shares over the long term should attempt to invest in the IPO.
Others were also mainly positive about Google's attempt. "The jury is still out on all the details, and we will see how it plays out in the next few months," said Peter Thiel, co-founder and former chief executive of PayPal Inc., which had one of the last big Internet IPOs. "But we currently have a process that is massively inequitable between big institutions and small investors. . . . I think it's great that Google is doing what it can to weaken the power of the Wall Street mafia."
