IPO Update: Can You Google The Words `Dutch Auction`?; Economic Wrap Up , CNNfn.

Publication: Finance Wire

Bookmark this article Print this article Link to this article Email this article Digg It! Add to del.icio.us RSS

COPYRIGHT 2004 FDCH e-media

Original Source: THE MONEY GANG

ALI VELSHI, CNNfn ANCHOR, THE MONEY GANG: Let`s start with Allan Chernoff. Let`s just remind you, this is a $2.7 billion IPO. It will be one of the biggest public offerings in history. But unlike other IPOs, as Pat says, Google`s going to sell shares through this unusual Dutch auction method.

PAT KIERNAN, CNNfn ANCHOR, THE MONEY GANG: Allan joins us now with the details. Allan.

ALLAN CHERNOFF, CNNfn CORRESPONDENT: Ali, Pat, of course a very interesting approach to initial public offering. Not many companies have done this, as we said. Google is planning to conduct sort of an auction to determine the price. Now, that means for the individual investor it will probably be easier to get a piece of the action. The problem is the action may not be all that hot because of this auction system.

What they`re going to do at the outset here, basically have people put in bids, and based upon those bids, they`re going to determine a price for the actual offer. And so people have an incentive to bid up before the stock actually does trade. And what this would do, it would maximize the take that Google would receive, but it would minimize the possibility that the stock would actually have a big initial pop.

Because keep in mind, when investment bankers bring a company public, usually they do try to discount the price it`s offered at so that there will be a 10, 15 percent pop once it comes public so that there`s a buzz surrounding the company. Google already has quite a buzz. They don`t really need to deal with that.

Now, perhaps we can show you some examples. I understand we have a few graphics problems, but let me at least walk you through a few examples that there have been in the recent past. Overstock.com is a company that actually did use an auction, a Dutch auction system. This system where people put in bids before the price is actually determined and before the company goes public.

The company came out at $13 a share. During the first month the stock actually did trade down. It traded down, in fact, all of the way to $12.25. Later on, it climbed. But in this situation, it would have paid...

Read the full article for free courtesy of your local library.