When the facts change, I change my mind. What do you do? -- John Maynard Keynes

Wednesday, September 17, 2014

Alibaba IPO, Winners, Losers

According to the Alibaba prospectus (Sept. 5) the "Chinese online and mobile commerce colossus is offering a maximum of 368 million shares for sale through six principal underwriters: Credit Suisse, Morgan Stanley, JPMorgan Chase, Goldman Sachs, Citigroup, and Deutsche Bank. If the shares sell at the top of the pricing range, at $66, the IPO would raise more than $24 billion, putting Alibaba’s market cap at $163 billion."(source infra)

Who are the winners (besides Alibaba, Yahoo, and Jack Ma)?-- The Wall Street fable behind Alibaba's IPO: "... The investment banks are garnering around $350 million in fees, or only around 1% of the proceeds, well below the norm on most IPOs. No the cash payout to the bankers travels in a more circuitous route. These fabled Wall Street firms are handing their favorite clients $6 billion in quick profits. That’s around 10% of the total amount left on the table in the entire tech boom from 1999 to 2001. Investors, in turn, are very likely to repay the firms with big trading commissions in the days and weeks to come. The biggest such payers tend to be hedge funds, so hedge funds usually get the meatiest share allocations. Mutual funds that pay low commissions have less favored status. The rule of thumb, says Ritter, is that Wall Street recoups 30% of the total windfall in commissions. That’s $1.8 billion. So including fees, Wall Street’s potential take mounts to well over $2.1 billion...."

And the losers in allowing Alibaba shares to be underpriced? Yahoo, Jack Ma, and Alibaba. But hey, with the money flowing like champagne, leave a few billion for the bankers and their "friends."

The Big Picture

Financial Crisis - The Telegraph

JohnTheCrowd.com | The Sailing Website

Craig Newmark - craigconnects