Imagine you’re a company and you want to go public. If you’re going to hit the market, you hire some banks to make sure that from the get-go there are buyers prepared to pick up the stock you’re selling. That’s why companies hire banks as book runners.
You would think that the more book runners, the more shares sold, yes? Wrong. How do we know? Because of what happened in Hong Kong this week that lead to the collapse of a $US6 billion IPO.
No one is 100% sure how this happened, but the 29 Hong Kong banks that were supposed to take meat producer WH Group public failed to keep the deal alive, according to The South China Morning Post.
You may recall that WH Group is the company that formed when China’s biggest meat producer, Shangui, bought U.S. meat producer, Smithfield Foods.
Sources told Ray Chan, George Chen and Nick Edwards of the SCMP that banks sold only about a third of the $US1.9 billion worth of shares that were being put up for sale. This was after three weeks of share offering in which the price of the WH’s stock was lowered to entice buyers.
The group of 29 was lead by BOC International, Morgan Stanley and UBS — so no amateurs. Some bankers are blaming Morgan Stanley as it was the lead underwriter on the deal and also led the takeover of Smithfield.
Another source blames the whole thing on arrogance and says the banks simply wouldn’t communicate with one another.
Others say the deal was just executed poorly. From SCMP:
“The way the deal was marketed was plainly wrong,” said Philippe Espinasse, a noted market analyst and author and former head of equity markets for Asia at investment banks Macquarie and Nomura.
Espinasse said having a record 29 book runners was “ridiculous for a US$6 billion deal”.
Too many cooks in the kitchen.
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