Friday, April 30, 2004

Sour GoogleGrapes?

The BBC is reporting that some Wall Street experts are cool on Google's IPO plans, specifically the "Dutch auction" method of allocating shares. Showing that spreading FUD isn't limited to tech firms, the Beeb paraphrases the "insiders" arguments as:

* "The mechanism was responsible for some of the least successful IPOs of the period, such as online magazine Salon. " It wasn't the method, but the product that did in Salon. No one believed in a subscription model for an on-line periodical. And they were right!

* "Dutch auctions and other supposedly open IPO forms are blamed for the extraordinary price swings seen in the early days after some high-profile flotations." No, selling to bankers' friends and family (and locking out real investors) are what lead to wild swings after earlier IPOs.

* "Some analysts say they also tend to underprice shares, leading to insufficient returns for the issuer." In fact, they tend to overprice shares as wildly enthusiastic (but "common sense"-challenged) potential investors bid up the price before the issue. In contrast, investment bankers almost always significantly undervalue initial offerings (thus the wildly surging price on first trading day and the huge profits for the friends and family).

Sounds like a lot of investment bankers are seeing the writing on the wall which says that many of their services may no longer be needed - or needed less often - and they don't like it. Tough toenails, guys - go get a real job.

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