Photo: Flickr/Seth Lemmons
An initial public offering, or IPO, often sounds like a great idea for owners of big private companies. It’s a quick way to raise capital, value the company, and cash our if you’re a shareholder.But not all IPOs go smoothly. Many get planned, but never happen.
In the aftermath of the Facebook debacle, we’ve decided to take a look at some other IPO disasters.
Whether its a poor market environment, a bad business model, tech glitches, or overblown expectations, everything that can go wrong while taking a company public has.
Key dates: March 23rd, 2012 (Attempted IPO date)
IPO Size: $100 million
What happened: In what might be the most disastrous IPO of all time, BATS, an alternative stock exchange, was forced to pull out after a bizarre technological glitch in its own exchange! Trading was halted after the stock plunged to $.04 from an initial price of $15.25 just a few moments after it opened. That, and a similar error with Apple stock raised serious concerns about the company's technology. The debacle is estimated to have cost Morgan Stanley and other underwriters $7.1 million in fees.
IPO Size: $3 Billion
What happened: In the run up to its IPO, Goldman's earnings fell short and an over-reliance on trading became obvious. Further, banking stocks were getting crushed and it was clear the company would trade at a valuation unacceptable to partners who had hoped to make their fortune on the deal. The IPO was eventually withdrawn. Goldman held its IPO a year later, and raised $3.66 billion, but the initial failure was an embarrassing incident for the bank and then CEO Jon Corzine.
IPO Size: $300 million
What happened: In an ominous sign of things to come, Solyndra canceled a planned IPO in June of 2010. In hindsight, there were some truly scary numbers, a total debt of $140.9 million, a now infamous loan of $539 million from the Department of Energy, and a net loss of $172 million in 2009. The company declared bankruptcy in August 2011 marking a huge blemish for the Obama administration.
Key dates: June 17th, 2011 (IPO date)
IPO Size: $3 billion
What happened: Prada has attempted or delayed an IPO four times over the past eleven years. An initial attempt in 2001 was delayed by 9/11. Attempts in 2002 and 2008 were derailed by weak demand for luxury goods or adverse market conditions. Prada eventually managed to go through with it and raised $2.1 billion in a Hong Kong IPO last year, significantly less than the initial target.
IPO Size: $150 million
What happened: Kozmo.com was an online delivery service that brought snacks and videos to your door in under an hour. A victim of the collapse of the dotcom bubble, Kozmo was too late to the party. Investors no longer had an appetite for loss making online start ups. The site is no longer a going concern.
IPO Size: $575 million
What happened: IPOs are a great exit strategy for private equity companies. Until they can't get the price they want. Investors were willing to offer no more than $10 a share for Harrah's Entertainment Corp. (now Caesar's Entertainment Corp.) placing the equity value at about $3.3 billion. That was significantly less than the value expected by TPG Capital and Apollo Global Management, the two biggest private equity stakeholders, and the IPO was cancelled.
IPO Size: $100 million
What happened: Current TV was a victim of that frequent IPO killer, 'market conditions'. Yes, Current tried to launch at the height of the recession, and 16 other IPOs had been cancelled in the early part of that year. However, it had turned a loss every year up to its withdrawal. The channel's backers, including former Vice President Al Gore, had hoped that Keith Olbermann would take the network to the next level, only to end the relationship acrimoniously.
Key dates: Friday, May 18th, 2012 (IPO date)
IPO Size: $16 billion
What happened: Unless you're a Luddite or have been hiding under a rock for weeks, you've probably heard a bit about this one. After opening at $42 the stock quickly dropped to its IPO price of $38, only kept from going lower by the heroic measures of its underwriters. It has since come to light that underwriters cut estimates on information from a Facebook executives and told only large institutional investors, and many traders had no idea whether their orders had been executed by NASDAQ. Facebook is so upset with the exchange that it's been rumoured that they may switch to the NYSE. For such a highly anticipated offering, the day and the subsequent weeks have been a huge disappointment.