Chapter 3 - The Roadshow, June 1999 - Episode 3Listen to podcast
“I’m already sick of the sound of my own voice,” Larry tells Donna. “Fifteen times making the same fucking pitch in two days. And two weeks left to go. The fucking Europeans don’t get the ‘ecom squared’ bit at all. I can’t explain it to them.”
“They still believe in dividends, I hear,” says Donna.
“No wonder,” says Larry. “I’m not going to worry about the Euro if they ever get it out.”
They’re in the special Concorde section of the British Airways First Class Lounge at London’s Heathrow Airport. Gus and Rachel are there, too, but being discreet and staying away from the principals. A careful observer would notice three other similar groups in the lounge. The bankers can be recognized by pin stripes and pitch books under their arms; the principals usually have new suits; everyone is in white shirts.
There are three or four IPOs every day in June of 1999. Since a roadshow takes about two-and-a-half weeks, this means that there are at least fifty companies on the road at any one time “going public”. There are also older public companies selling more stock or bonds into the relentless investor demand — all in a hurry to get rich and afraid of being left behind.
Most stocks issued in these halcyon days go up by fifty percent or more on their first day. Many go up 100 percent or more. Obviously, anyone who can buy a stock at the “issue price” has an instant profit locked in. By the next day, the stock may well cost twice as much. That’s great if you have the stock but takes all the fun out of it if you have to wait until the next day to buy. But, even with the crush of companies on the road, peddling stock as fast as the SEC will approve their prospectuses, there are not enough new issues to go around. So people do buy on the second day and on the third day and the stocks go up and up almost without pause.
People say there’s never been anything like it. But there has. Not only the tulip mania in Holland, which a few crabby souls who aren’t playing the market keep recalling. There was a Suez Canal craze; several railroad crazes; the everything craze before the great depression of 1929; and even software and biotech crazes just a decade before the greatest bull market of all time.
But this time is different because the Internet has changed everything. The US is the world’s only superpower, so unproductive money can be diverted from defense. There is almost full employment in the US. The growth in the rest of the world makes everyone else better customers for the great economic machine that is America.
All of this is true this time must be different. Stupid people believe this; smart people, too. But no one, even a cynic, can dispute that access to shares bought at the issue price are the ticket to instant wealth. If you could find enough of these shares, you could double your money almost every day. These shares are better than gold. And these precious shares all start out in the hands of the underwriters — bankers like Barcourt who take companies like hackoff public.
hackoff plans to sell five million shares at a price between twelve and eighteen dollars per share. On the eve of IPO day the issue price will be set depending on how well the roadshow has been received. Barcourt & Brotherson will buy the whole issue at the set price less a seven percent commission. That money goes to hackoff directly. Barcourt and the other underwriters in the syndicate will then immediately resell their shares at the issue price and trading will begin.
In theory, Barcourt and the underwriters take a risk that there won’t be enough buyers for the initial issue. But these days that’s only theory. In reality, they will have orders for many times the number of shares available and will allocate these shares among their customers.
But how? you ask, how will they do this allocation? And how do I get some?
Here’s who gets this brand-spanking-new, sure-to-go-up stock at the issue price on opening day:
The funds. These are mutual funds, the funds in your pension plan, the funds you hear about: Fidelity, Magellan, Strong, Janus. And some you don’t hear about that only very rich and/or famous people invest in. These get stock. It is the managers of these funds that Larry and Donna are visiting on their roadshow.
Good customers of the brokerage firms. These are people who have large accounts with Barcourt and the others. These underwriters will be sure to reserve some shares from the IPO for their best individual customers. Brokers are calling and saying, “I can get you five to ten thousand shares of the hackoff IPO; want to do it?” and usually the customer will say, “Yes, yes, yes. Get me some. Can’t we get more?” They never say “thank you”; that’s not the way its done but the brokers don’t care; their feelings aren’t hurt.
People the brokerage firm wants to have as friends. When the time came near for hackoff to go public, brokers began to call Larry and Donna and offer them shares in the companies they were taking public. Donna took all without prejudice and sold all the next day without hesitation; that’s called “flipping.” Larry took a lot of them but didn’t sell them all. Naturally, these same brokers wanted to do the hackoff IPO.
“Friends and family”. Some of the IPO shares are reserved for friends of the company and the people in it. Larry and Donna decide who gets these shares. Some go to company customers and suppliers. Some of the executives of big e-commerce sites running hackoff software were grateful for the opportunity to be on the friends and family list. Because hackoff is a democratic company in the dot.com mode, Larry is letting employees buy friends and family stock and to further extend this offer to their friends and families.
“Greedy pigs,” says Larry. “Jesus Christ. They just want to flip the stock. They’re going to get rich with their options anyway.”
“They can’t flip it,” says Donna. “We’ve got a ninety-day lock up on friends and family stock.”
“Then they’ll sell it after ninety days,” says Larry.
Employees have requested a total of four times as much stock as he has available and he and Donna will have to decide who gets what and listen to the inevitable bitching.
Still in the Concorde departure lounge, Larry recognizes one of the other roadshow CEOs and, uncharacteristically, starts a conversation. “Frank, Larry Lazard. Haven’t seen you since MacHack many moons ago.”
“Larry, great to see you. I heard you guys were going public. Who’s taking you out? How’s it going?”
“Barcourt. Going okay. I think. Already sick of hearing myself do the pitch. Met some real assholes in London today. You?”
“Morgan Stanley’s the lead for us. I think I met the same assholes. East Minister Bank and Trust?”
“You got it. Guy thinks he’s God because he might ask for 100 thousand shares and we’re supposed to suck up to him to do the bankers a favor. He was too busy picking his nose to hear a word I said.”
“Worse for me; we had lunch there and I had to watch him pick his nose while I tried to eat the cucumber sandwiches with no crust and do the pitch at the same time.”
Boarding is announced.
The Concorde looks very small on the tarmac of London’s huge airport, surrounded by 747s, DC-10s, and various models of Airbus. Its needle nose is pivoted down so the pilots can see while taxiing. It’ll come up for flight. Inside, the cabin is small, too. It’s all first class but not at all roomy. The tube shape of the fuselage is apparent. The cabin furnishings look obsolete. The rounded seat backs are Art Deco. There is no faster civilian plane but the Concorde shows her advanced age. The digital Mach-meter in the front of the cabin, which shows how many times the speed of sound the plane is flying, is not LCD or even LED; it’s made up of a lot of very visible individual light bulbs.
On takeoff there is a gratifying roar and push of acceleration. Special rockets are used just for takeoff so that the stubby wings designed for supersonic speed can get enough purchase to lift the plane from the runway. They do; the little jet climbs quickly but doesn’t go supersonic until it is over the sea where sonic booms aren’t politically incorrect. Once it can accelerate, it quickly reaches Mach 2.5.
The pilot comes on the intercom: “British Airways welcomes you to Concorde. You are among a very special group of people. You will see that the sun is higher in the sky when you get to New York than it was when we left London. If this were later in the year, you would have seen the sun rise in the West. Something only astronauts and Concorde passengers get to see...”
The passenger amenities include pewter picture frames which say “CONCORDE” in a flowing script, but the food is British and not very good.
The flight is incredibly fast, just a little over three hours against the prevailing winds. So it’s two hours earlier in New York when they arrive than it was in London when they left. But the flight is not so fast that Frank and Larry don’t get a chance to give each other each five thousand shares in their respective companies’ friends and families programs.