Google Ipo Case
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THE Google IPO | Understanding IPO Pricing Alternatives | MF Case 5 Group 9: | Angela 1113809238 | Jason 1113809011 | Jeff 1113809018 | Simon 1113809237 | 3/11/2012 | |
Table of Contents
1 Google versus Baidu (Dutch Auction vs. Book Building) 1
2 Alternative IPO pricing methods 2
2.1 Book Building 2 2.1.1 Hallmarks of book building: 2 2.1.2 Green Shoe Option 2
Dutch auction 6 2.1.3 Sealed-bid price-discriminatory auction 6 2.1.4 Sealed-bid uniform-price auction 6
3 Why has Book Building dominated the auction method all over the world? 7
4 Why underpricing persists in the Book Building system? 9
5 Our own understanding of the underpricing in IPOs 11
5.1 Conflict of interests: 11
5.2 Sources of Income for an IPO Deal: 11
1 Google versus Baidu (Dutch Auction vs. Book Building)
Pricing method: Google by Dutch auction; Baidu by Book Building
Note: returns are calculated relative to changes in the NASDAQ index in the corresponding periods and without being annualized.
Conclusion: From this chart we can see that in the short period immediately after IPO date, the underpricing phenomenon is much more pronounced in the case of using book building method to set the IPO offer price.
2 Alternative IPO pricing methods 3.1 Book Building 3.2.1 Hallmarks of book building: 1) Bids into the book are confidential. 2) Bidding is by invitation only (only clients of the book runner and any co-managers may bid). 3) The book runner and the issuer determine the price of the shares to be issued and the allocations of shares between bidders in their absolute discretion. 4) All shares are issued or transferred at the same price.
3.2.2 Green Shoe Option
A greenshoe, legally called an "over-allotment option", gives underwriters the right to sell additional shares in a registered securities offering at the offering price, if demand for the securities exceeds the original amount offered. The greenshoe can
THE Google IPO | Understanding IPO Pricing Alternatives | MF Case 5 Group 9: | Angela 1113809238 | Jason 1113809011 | Jeff 1113809018 | Simon 1113809237 | 3/11/2012 | |
Table of Contents
1 Google versus Baidu (Dutch Auction vs. Book Building) 1
2 Alternative IPO pricing methods 2
2.1 Book Building 2 2.1.1 Hallmarks of book building: 2 2.1.2 Green Shoe Option 2
Dutch auction 6 2.1.3 Sealed-bid price-discriminatory auction 6 2.1.4 Sealed-bid uniform-price auction 6
3 Why has Book Building dominated the auction method all over the world? 7
4 Why underpricing persists in the Book Building system? 9
5 Our own understanding of the underpricing in IPOs 11
5.1 Conflict of interests: 11
5.2 Sources of Income for an IPO Deal: 11
1 Google versus Baidu (Dutch Auction vs. Book Building)
Pricing method: Google by Dutch auction; Baidu by Book Building
Note: returns are calculated relative to changes in the NASDAQ index in the corresponding periods and without being annualized.
Conclusion: From this chart we can see that in the short period immediately after IPO date, the underpricing phenomenon is much more pronounced in the case of using book building method to set the IPO offer price.
2 Alternative IPO pricing methods 3.1 Book Building 3.2.1 Hallmarks of book building: 1) Bids into the book are confidential. 2) Bidding is by invitation only (only clients of the book runner and any co-managers may bid). 3) The book runner and the issuer determine the price of the shares to be issued and the allocations of shares between bidders in their absolute discretion. 4) All shares are issued or transferred at the same price.
3.2.2 Green Shoe Option
A greenshoe, legally called an "over-allotment option", gives underwriters the right to sell additional shares in a registered securities offering at the offering price, if demand for the securities exceeds the original amount offered. The greenshoe can