In June of 2000, I played a modest role in what, at that point, was considered the largest failed IPO in history.
Dot.com fever was starting to ebb a bit – the mercury in the thermometer was no longer quite as throbbing as it had been. Still, we were optimistic. After all, we all knew folks who had lucked into big bucks from their company’s IPO’s the business wisdom and prescience to join companies that went on to have successful IPO’s in which they made oodles of well-deserved money. So at Genuity we were asking ourselves the ‘why not us?’ question.
Unlike many of my colleagues, I was closed fisted and suspicious enough to invest at the pre-IPO insiders price only the amount I was prepared to lose. That amount was $11,000, and it’s a darned good thing I was prepared to lose it, because lose it I did.
At least I got to take the capital losses.
All I got to show for the dashed dreams that accompanied the loss of all those beautiful options I held was the mental flash of a loot-bag winging its way out my window. I had been doing the multiplier in my head so often – all the stock would need to do was nudge up 10 bucks a share (surely, not too much to ask) and I could have me a summer house, and a big chunk of retirement dough, and a new bathroom.
Alas, and alack.
But at least I didn’t have to pay for the options.
Anyway, by Genuity standards, I was one of the lucky ones.
I had friends who took money out of their retirement funds, dipped into their kids education accounts, mortgaged their houses, to buy into the Genuity IPO. One fellow I worked with had taken a pass on a friends and family opportunity on the AOL IPO. He was not going to be denied this time around.
We knew within minutes of the opening bell, of course, that the Genuity IPO was going nowhere. Correction. Nowhere would have been good. It was going down.
I don’t believe that GENU shares ever hit the pre-IPO price. And since us lucky insiders couldn’t sell for 6 months, we got to spend 6 months watching the price drift off into oblivion.
Needless to say, our big IPO celebration party had many of the elements of a wake – including the black humor.
And now there’s last week’s BATS Global Trading fiasco.
Don’t know from BATS?
BATS Global Markets, Inc. (BATS) is a leading operator of securities markets in the U.S. and Europe. BATS develops and operates electronic markets for the trading of listed cash equity securities in the U.S. and Europe and listed equity options in the U.S. BATS is currently the third-largest equities exchange operator both in the U.S. and globally.
Anyway, they’re in the financial game. Sheesh. At Genuity, we had an excuse. All we knew was bandwidth and data centers, not financial markets. Shouldn’t the Bats guys have had more of a clue? Or was the problem that they’re more of a technical company – financial naïfs, dopes like us Genuity-ites?
Here’s what happened with the Bats-men:
In one of the shortest debuts ever for a newly public company, BATS Global Markets Inc. (BATS) was forced to pull its initial offering Friday after systems issues caused erroneous trades that affected its stock as well as shares of Apple Inc. (AAPL) and other companies.
The BATS IPO will be remembered for its first-day meltdown at the hands of the company's own technology. BATS is an alternative exchange and the third largest stock-exchange company in the U.S.…
Besides BATS, shares of Apple and other securities in the symbol range A through BF were affected.
One veteran Wall Street trader said the BATS system likely was stressed to the breaking point after a rush of BATS stock orders. In this scenario, shares in the company essentially cracked the BATS trading system. (Source: WSJ.)
The BATS IPO had been priced at $16-18 the night before their Big Day, went out at $15, and immediately plummeted to close to zero.
In a statement late in the session, the company's chief executive said the deal was being withdrawn but didn't explain what went wrong with the trading in its shares.
BATS can cancel the IPO because the trades weren’t scheduled to settle for a few days.
Okay.
So these guys are an exchange. They screwed up their own IPO. Their system choked big time.
Do we think they’ll be venturing out in public any time soon?
I’m sure their initial investors are feeling both cheated – hey, we were going to be rich! And relieved – hey, we just dodged a big one.
And what must their investor relations guy be thinking as he hops out of bed this morning and heads in to work? I love my job? (And I thought the Goldman PR guy who landed his job the day before Greg Smith’s billet-doux was published had it tough.)
Sometimes I’m just as happy to be a nobody.
I think your GENU fiasco exemplifies something that is pretty common, the idea that the stock price and the company itself are in two unconnected worlds.
ReplyDeleteThat actually is true in the short run, since so many buy and sell decisions are made by people fairly ignorant of a company and its business, or don't even know or care what the company does and are buying or selling because the stock is "acting well" or "looking weak."
In the long run though the two are connected, and one way to make money in the market is to understand a company better than most people, and wait for times when the decisions of the ignorant have pushed the price well below or above what you think it is really worth, and buy or sell accordingly. (If you happen to have a husband around who still believes in the efficient market theory, which asserts it is not possible to have above average knowledge of the value of a company other than what its stock price says, please don't mention this.)
Although, if I recall correctly, at the time of the IPO you weren't yet as negative on GENU and its management as you were to become later, it wasn't as if you ever thought that it had anything all that special or management was particularly competent. In retrospect it was that reality that controlled the stock price sooner than you expected, probably as a result of the massive vaporization of rose colored glasses throughout the tech-stock market as the year 2000 rolled along.
Losing money on Genuity served me right, as I had reservations from the get-go about how well run it was (hah!), and about the screwy relationship with Verizon. Nonetheless, I did convince myself that I "couldn't hold a director-level position"(even if it is just director in a tech company, not a legally meaningful director)"and have all these people reporting to me and not have faith in the company." Of course, I nonetheless rocked myself to sleep many a night fantasizing about what I'd do with all that option money.
ReplyDeleteI will say that as IPO day approached, my reservations increased. When Smith Barney called, the night before the IPO, to confirm my purchase, they lied to me about something or other to do with my ability to back out at that moment. I wussed and listened to them - others held their ground and didn't get stuck.