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#1 |
Guest
Posts: n/a
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I got a question about when a company goes public and releases stock...
The price of the stock that the company puts out, rigth when it goes public (first hand).
who sets the price? I was having a discussion with a friend where he said that they could release as much stock as they want, to get as much money as they want, but I said that that sounds a little farfetched and that they are only allowed releasing stock to which the the total value would be the same of the total value of the company which one is it? or is it something different? thanx! |
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#2 |
So Fucking Banned
Join Date: Sep 2004
Posts: 359
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your friend is correct
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#3 |
Confirmed User
Join Date: Dec 2002
Location: Daytona Beach
Posts: 7,133
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The price is set (i beleive) by the total value of the company at the time of floating as decided by the amount of shares issued and at what value.
Regards, Lee |
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#4 |
Confirmed User
Join Date: Jun 2001
Location: il and nc
Posts: 1,760
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the underwriting bank sets the price, as they are the ones issuing it to the public. Lets say Lehman Brothers wants to take company X public, they evaluate the company at around 32$/share, they pay company 28$/share, and then unload the stocks to the public. They acquire the shares at a discount because they are taking the risk of underwriting the stock.
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#5 |
Too lazy to set a custom title
Join Date: Apr 2004
Location: Buffalo, NY
Posts: 35,218
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jaker is right on the money...
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#6 |
Confirmed User
Join Date: Feb 2002
Posts: 486
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Jaker beat me to it
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#7 |
vip member
Join Date: Jan 2003
Posts: 17,798
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The problem is, people have to WANT to invest in your company and if you overvalue the stock, of course no one is going to buy it.
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#8 |
Confirmed User
Join Date: Jun 2001
Location: il and nc
Posts: 1,760
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also, most IPO's are handled by between 5-10 investment banks, with one or two banks taking on the biggest share of the action. But analysts from each bank dig around the companies previous reports, project dividends, etc to come to a price and then compare and contrast with the numbers all the other banks come up with
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#9 | |
Confirmed User
Join Date: Jun 2001
Location: il and nc
Posts: 1,760
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Quote:
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#10 | |
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Join Date: Jan 2003
Posts: 17,798
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#11 | |
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can they value a stock at more than the company is worth in assets? (company is worth 500 000$, they releast 2.5 million $ of shares) |
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#12 | |
Confirmed User
Join Date: Jun 2001
Location: il and nc
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Quote:
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#13 |
Too lazy to set a custom title
Industry Role:
Join Date: Sep 2002
Location: Phoenix, AZ
Posts: 9,825
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the investment banking dept of the brokerage firm hired to price the issue (ie take it public) set the price per share and decide how much capital to raise by issuing a certain number of shares in the primary market (the IPO holders)
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#14 | |
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Join Date: Jun 2001
Location: il and nc
Posts: 1,760
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Quote:
My partner and a couple of our employees are ex-investment bankers, just hearing the work stories made me cringe, one field I'm glad I never got into.
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#15 | |
Die With Your Boots On
Join Date: Oct 2003
Location: Hawaii
Posts: 22,872
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#16 | |
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#17 | |
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#18 |
Entrepreneur
Join Date: Oct 2002
Location: USA
Posts: 31,429
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The investment bankers at the primary underwriting firm determine the price for the offering coordinated of course with the company's major shareholders.
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#19 |
aspiring banker
Join Date: Mar 2002
Location: toronto
Posts: 10,870
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bankers set the price. they do valuations(can use comparables) to determine what the company is worth. they price and market the stock.
bankers guage the interest in the stock by doing whats called 'road shows' where they pitch the company to various large investors(institutions like pension funds, mutual funds, etc). its all based on the demand for the stock and not really on some form of actual valuation, which is why you see more ipo's in bull markets because there's more demand which means a higher price to book value. if the issuing company wants to set the price higher than what the bank says it should be based on demand, they'll have to sell less shares. there's only so much demand for a stock. |
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#20 |
Confirmed User
Join Date: May 2002
Posts: 1,156
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...unless you're Google...
then you have some crazy dutch auction to price your shares - but only after you make ill-timed comments in playboy magazine before the IPO (quiet period). |
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#21 |
Confirmed User
Join Date: May 2004
Location: San Diego, CA
Posts: 1,007
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One part you guys haven't said that is somewhat important.
Their valuation of the shares is based on a price they are confident will allow all the shares to be sold.
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#22 | |
aspiring banker
Join Date: Mar 2002
Location: toronto
Posts: 10,870
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