How an investment bank helps an IPO's shares like Lyft to stay above its bid price

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Lyft's shares took a rollercoaster ride during its first six days of trading. The course was sold for $ 72 on Thursday, March 28 and began trading on Friday, March 29. It was opened at $ 87.33, quickly traded at a high of $ 88.60 and closed at $ 78.29, up $ 6.29 or almost 9% on the first day.

It continued to fall on Monday April 1 and closed at $ 69.01, down more than $ 9 and essentially $ 3 below price. Initial investors paid for the stock on Thursday. It rose slightly over the next three days and closed Thursday at $ 72.00, exactly what had been offered to initial investors. He had a strong day Friday, rising 2.45 or 3.4% to $ 74.45, which is probably a sigh of relief for the company, his business bankers and investors who have been in able to obtain the shares priced at $ 72 from the IPO.

Investors do not want to see a stock bought down. The companies that sold the shares do not want to see the value of the company go down. And investment banks or IBs do not want the shares of a company they have made public to fall below the bid price or the broken price, as this could affect their ability to bring private companies use them to make them public.

It is openly said that investment banks "support" the actions of a newly printed IPO. Here's how to use Lyft as an example.

How an investment bank "stabilizes" an IPO

Lyft offered 30.77 million shares in his IPOwhich was priced at $ 72. In the prospectus, the underwriters or investment banks were able to acquire 4,615,500 additional shares, representing 15% of the number proposed. The 15% is called the "greenshoe" which comes from the first company allow IB to do that.

When the IPO stock is placed or sold to the original investors, the 35 million shares and more (the 30.77 million plus 15% additional) are sold at $ 72, but the company, or Lyft in this case, does not initially receive than the proceeds of the sale. 30.77 million shares or $ 2.2 billion.

One or two of the investment banks are assigned the role of "stabilizing" the stock. What they do is by selling the 4.6 million Greenshoe shares they created in short position. The IB can now redeem these shares, but only if their price is lower than the offer price of 72 USD during the first 30 days, otherwise it would be a stock manipulation. . This helps create demand for the stock, but the International Bureau only has "firepower". & Nbsp;

What impact could this have?

The impact of stabilization on the stock will depend on the number of shares traded and the extent to which the bid price is calculated. It is still difficult to determine how much weight this could have, and in the case of Lyft, it may be even more difficult, as many shares were traded in the first few days.

On the first trading day, more than 71 million shares have changed hands, more than twice the number of shares offered. While the IB is trying to put at least a portion of the initial shares in the hands of investors who keep them, the temptation to swing stocks from $ 72 to somewhere in the $ 80 on the first day is just too tempting.

Note that the IB did not participate in the first day because it was never traded under the $ 72 offer price.

However, just after Monday's opening of the market, the stock fell below the $ 72 mark and nearly 42 million shares were traded. Tuesday's deal hit a low of $ 66.10 as more than 22 million shares traded hands. It remained below the $ 72 mark for Wednesday's entire while over 15 million shares were traded. On Thursday, stocks broke the $ 72 mark (but traded just below most of the day) and closed on Thursday at $ 72. Thus, the IB in charge of stabilization could have used all of its 4.6 million shares in four days.

It started strong on Friday, opening at $ 73.94 and closing at $ 74.45. One of the main reasons was Citron Research, a known short investor, who recommended not to short Lyft. Lemon has revealed to be a Lyft investor for two years and has set out five reasons in a note titled "LYFT – The amateur short film."& Nbsp;

Who makes or loses money on greenshoe shares

If the BI ends up using some or all of the green shoe, there are two additional impacts.

• The IB ends up making a little more money because it sold the shares at $ 72 and bought them back at a lower price
• However, an IB will want to give up the extra money that it would bring so that the IPO does not look like an attractive price.
• The company receives the amount that IB has paid for the stock, which is the price below $ 72 paid in this example.
• If the worst price paid by IB ends up being the lowest of $ 66.10, Lyft will receive an additional $ 300 million.
• At $ 70, Lyft will receive about $ 325 million

If the shares had remained above $ 72 for 30 days, Lyft would receive all of the $ 332 million.

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Lyft's shares took a rollercoaster ride during its first six days of trading. The course was sold for $ 72 on Thursday, March 28 and began trading on Friday, March 29. It was opened at $ 87.33, quickly traded at a high of $ 88.60 and closed at $ 78.29, up $ 6.29 or almost 9% on the first day.

It continued to decline on Monday, April 1, and closed at $ 69.01, a decline of more than $ 9 and essentially $ 3 from the original price paid by investors for the acquisition of the company. Thursday action. It rose slightly over the next three days and closed Thursday at $ 72.00, exactly what had been offered to initial investors. He had a strong day Friday, rising 2.45 or 3.4% to $ 74.45, which is probably a sigh of relief for the company, his business bankers and investors who have been in able to obtain the shares priced at $ 72 from the IPO.

Investors do not want to see a stock bought down. The companies that sold the shares do not want to see the value of the company go down. And investment banks or IBs do not want the shares of a company they have made public to fall below the bid price or the broken price, as this could affect their ability to bring private companies use them to make them public.

It is openly said that investment banks "support" the actions of a newly printed IPO. Here's how to use Lyft as an example.

How an investment bank "stabilizes" an IPO

Lyft offered 30.77 million shares on its IPO at a price of $ 72. In the prospectus, the underwriters or investment banks were able to acquire 4,615,500 additional shares, representing 15% of the number proposed. The 15% is called "greenshoe", the first company to have allowed IB to do so.

When the IPO stock is placed or sold to the original investors, the 35 million shares and more (the 30.77 million plus 15% additional) are sold at $ 72, but the company, or Lyft in this case, does not initially receive than the proceeds of the sale. 30.77 million shares or $ 2.2 billion.

One or two of the investment banks are assigned the role of "stabilizing" the stock. What they do is by selling the 4.6 million Greenshoe shares they created in short position. The IB can now redeem these shares, but only if their price is lower than the offer price of 72 USD during the first 30 days, otherwise it would be a stock manipulation. . This helps create a demand for the stock, but the IB only has a limited "firepower".

What impact could this have?

The impact of stabilization on the stock will depend on the number of shares traded and the extent to which the bid price is calculated. It is still difficult to determine how much weight this could have, and in the case of Lyft, it may be even more difficult, as many shares were traded in the early days.

On the first trading day, more than 71 million shares have changed hands, more than twice the number of shares offered. While the IB is trying to put at least a portion of the initial shares in the hands of investors who keep them, the temptation to swing stocks from $ 72 to somewhere in the $ 80 on the first day is just too tempting.

Note that the IB did not participate in the first day because it was never traded under the $ 72 offer price.

However, just after Monday's opening of the market, the stock fell below the $ 72 mark and nearly 42 million shares were traded. Tuesday's deal hit a low of $ 66.10 as more than 22 million shares traded hands. It remained below the $ 72 mark for Wednesday's entire while over 15 million shares were traded. On Thursday, stocks broke the $ 72 mark (but traded just below most of the day) and closed on Thursday at $ 72. Thus, the IB in charge of stabilization could have used all of its 4.6 million shares in four days.

It started strong on Friday, opening at $ 73.94 and closing at $ 74.45. One of the main reasons was Citron Research, a known short investor, who recommended not to short Lyft. Lemon has been a Lyft investor for two years and has outlined five reasons in a note called "LYFT – The Amateur Short".

Who makes or loses money on greenshoe shares

If the BI ends up using some or all of the green shoe, there are two additional impacts.

• The IB ends up making a little more money because it sold the shares at $ 72 and bought them back at a lower price
• However, an IB will want to give up the extra money that it would bring so that the IPO does not look like an attractive price.
• The company receives the amount that IB has paid for the stock, which is the price below $ 72 paid in this example.
• If the worst price paid by IB ends up being the lowest of $ 66.10, Lyft will receive an additional $ 300 million.
• At $ 70, Lyft will receive about $ 325 million

If the shares had remained above $ 72 for 30 days, Lyft would receive all of the $ 332 million.