Morgan Stanley (MS) executive Michael Grimes convinced Facebook (FB) executives to allow his firm to be the “single driver” for the coveted Initial Public Offering (IPO). This put the firm in the unusual position of calling most of the shots without input from other underwriters as well as earning more of the fees.
This decision proved costly as trading glitches at the Nasdaq Stock Market as well as several unusual moves by Mr. Grimes and MS led to the opening day’s roller coaster ride. In one questionable move, MS shut out the other lead underwriters J.P. Morgan Chase & Co. and Goldman Sachs Group, Inc. from meeting with institutional buyers making it difficult to judge the demand for IPO shares from that sector of potential buyers. Also, in the coming days prior to the IPO, MS decided to increase the number of shares to be offered as well as the opening price…the latter of which has come under scrutiny and criticism from both the street and industry observers. Also, over 26% of the IPO shares were allocated to indvidual investors, about 10% more than is typical.
The net result of these moves is a extremely volatile day which saw the stock open at $38, rise to $45 and quickly settle back to close just pennies above the initial offering price…largly due to support from the underwriters who bought shares to keep the price above the offering price to close the first day.
Unfortunatley for those who bought on day one, the stock has since lost about 21% of its value, the steepest decline ever for an IPO valued at $1 billion or more. The effect on future IPO’s is yet to be seen but most observers belive the end result will be a lesser appetite from investors with no new offerings on the horizon.
The law firm of Colling Gilbert Wright & Carter is currently investigating claims for losses associated with the Facebook IPO. Please contact our office for additional information.