Dutch Auction IPO, e.g. Google

[obrie572]

What happens in a Dutch auction IPO if all the offered shares have not been bid on? (i.e. there is an excess of shares)?

For example, if the issuing company is offering 1million public shares, but only 900,000 shares have been bid on, how does the auction proceed? Will those remaining 100,000 shares just be cancelled?

 

[halik]

You bid on quantity x price and they set the final price low enough to sell all the shares

<- doesn't remember IB training all that well

 

[obrie572]

Originally posted by: halik
You bid on quantity x price and they set the final price low enough to sell all the shares

<- doesn't remember IB training all that well

That's interesting. So let me make sure I'm understanding correctly.

Say ABC Inc. is offering 1,000,000 shares. After the 30 day auction ends, only 10 investors have bid on the stock, each bidding 1,000 shares @ $100/share (for a total investment of $100,000 each). However, since this means only 10,000 shares would be bought (10 investors * 1,000 shares each), ABC Inc. instead distributes 100,000 shares to each investor @ $1/share (for a total investment of $100,000 each still). However, now all 1,000,000 shares will be distributed (10 investors * 100,000 shares).

Are there other ways of handling this? For example, perhaps those remaining 990,000 shares just don't get sold and ABC Inc. waits until a later time to offer them (in the hopes that there is an increase in investor interest)?

Thanks for the help, I appreciate it

 

[sygyzy]

Halik's answer does not make sense to me. The way a dutch auction works is you bid for what you want and in the end, the lowest bid for the 1M shares is the price everyone pays. The company would not game the market and raise or lower the price so that all the shares sell. I think they would just continue as planned and sell the remaining 100k shares to whoever wanted to buy them later on, at the same price.

 

[halik]

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