Originally Posted by
Hectorplains
This from Chris Lee's newsletter,for those who don't subscribe, outlines the absurdity of the Tegel IPO -
THE Tegel share float, selling shares in a brand that is well understood, and where matters like sales margins and market share are all reasonably predictable, is at the other end of the scale, diametrically opposed to Diligent.
Whether it continues to succeed, or fails, will have nothing to do with historical scandals, colourful investors, penny dreadful punters and regulatory interventions.
But I have to say the process of pricing the shares and allocating them has been as unnecessarily complex as any process I have seen.
Let me justify that. Consider this.
New Zealand brokers, on behalf of clients, were asked to bid for the shares by noon last Friday, and to bid at price bands of 20 cents, beginning at $1.55, then 1.75, 1.95, 2.15, 2.35 or $2.50.
A broker believing the shares were worth somewhere between $1.75 and $2.00 might bid for a large number of shares at $1.95 and a smaller amount at $2.15.
This demand was then handed to the Australian lead brokers, Goldman Sachs and Deutsche Bank, on Friday.
As an aside, Goldman Sachs and Deutsche Bank have left New Zealand, unable to achieve the market successes they had planned. (I think I know why they failed.)
On Monday and Tuesday of this week, the Australian brokers and institutions did their bidding, and then the lead brokers had the right to set any price they liked.
For example, they could have set a price of $1.56, which could have meant that all New Zealand bids at $1.55 were unsuccessful. They had our bids days before they bid, our pricing perhaps held in sealed envelopes behind Chinese walls, perhaps not.
Of course the Australian lead brokers did not exploit this anomaly. Demand was insufficient at any price higher than $1.55. But they had the right to do so.
What nonsense. The lead brokers, indeed all brokers, and all institutions should have bid simultaneously and no one should have had the right to set any price other than the bracketed figure required of New Zealand bidders.
Book-builds and differentiated bidding processes are the bane of retail investors. Any process that allows lead brokers to ‘’play God’’ is an ugly process.
Perhaps it is unrealistic to expect today’s investment bankers to simplify things – their fees might be affected if things were too simple. Complexity breeds confusion and confusion has to be clarified. For a fee.
[FONT=arial]How many investors would prefer to dump ‘’book builds’’ and revert to the days of an underwritten issue at a known price?[/FONT]
Let the underwriters set the price and let the price be known before investors are asked to invest.
How many potential investors did not bid because they feared the lead brokers’ intervention?