Chapter 4 - The IPO, June 29-30, 1999 - Episode 1Listen to podcast
Larry and Donna have made the last pitches of the hackoff roadshow in New York today, including a lunch for about ten small funds at the Jockey Club. Gustav was with them as he had been on the entire trip for the last day in New York. Harvey Maklin, himself, replaced Rachel on the bankers’ team and introduced Larry and Donna at each account and at lunch. Chief trader Sam Gutfreund has joined this group in a Barcourt & Brotherson conference room at the World Financial Center.
“The book is a little lighter than we’d like to see,” says Gutfreund. “There’s only about three-point-five times coverage.” He means that there are orders for about seventeen-point-five million shares. Hackoff is selling five million.
“It’s been a lousy two weeks in the market,” says Larry. “That doesn’t have a fucking thing to do with the company and you know it.”
“Look,” says Harvey. “You guys did a great job. Everybody did a great job. The market did turn against us a little and the book isn’t quite what we want to see. That’s no one’s fault, but it is a fact.”
“John Braxton didn’t do a great job,” says Larry. “We didn’t get the support from him that both of you promised. ‘Trust me’ you both said, and I did and you didn’t come through.”
“What do you mean?” asks Harvey. “John has been taking calls from the funds; he’s been in sell mode; he’s even reached out proactively to some of the buy-side analysts to explain the numbers and the story.”
“He hasn’t been telling the ‘e-com cubed’ story,” says Larry. “You convinced me to stop at ‘e-com squared’ and John was going to take it the rest of the way to ‘e-com cubed’ and he didn’t. That’s what we needed to make this a blow-out. That’s what you said you’d do. And you didn’t. THAT’S why the book is light. Now you want us to pay for that.”
“’E-com cubed’...” Harvey says slowly.
“You don’t even fucking remember it!” Larry is almost screaming.
Donna looks down at her fingernails.
“Yes … yes … ‘e-com cubed’. Of course I remember,” says Harvey unconvincingly. “Of course, I remember. And, of course, John did try that. But, for some reason, Larry, it didn’t hunt,” he says, gathering speed. “He tried. We all thought it was good a way to put the pitch, but sometimes things we think’ll work just don’t resonate with—”
“They don’t fucking resonate if you don’t fucking say them,” says Larry. “I could’ve sold ‘cubed’, but you guys told me to stick with ‘squared’, that you’d do the rest. And you didn’t. Now we have a ‘light’ book and you want the company to pay for that.”
“The book’s not all that light,” says Donna. “We’ve got a million share order from Semper.”
“Looked at another way,” says Gutfreund, “a million shares comes from this one order and they certainly don’t expect to get a million. If we gave them close to this they would consider the IPO a bust. The rest of the book is even lighter if you take the Semper order out. And, frankly, I would have thought we’d have gotten more interest after word of that one got out. I…”
“You what?” Larry interrupts. “Why do you think we didn’t get more orders? What did you hear?”
“The market was weak,” interjects Harvey. “We know that. We—”
“Let Sam finish,” Larry growls. “He was about to say something else. Sam, what did you hear?”
“I heard that some funds were nervous about your background,” says Sam Gutfreund, trader and expert poker player. He looks Larry in the eye without flinching.
“My ‘background’ MADE this company,” says Larry softly but with steady and angry emphasis.
“Not an issue, Lar, not an issue,” says Harvey, executive and diplomat. “You guys did a great job. You have a great company. The book is what the book is. Now we have to price the deal and get it done.”
The company said in its preliminary prospectus that the offer would be priced between twelve and eighteen dollars. Now all orders for initial allocations of stock are in and the actual price per share to investors must be set.
“What is Barcourt recommending?” asks Donna.
When Harvey hesitates, Gutfreund jumps in: “Fourteen dollars, and I’m not even sure about that.”
“Fucking fourteen dollars?!” Larry explodes. “FUCKING FOURTEEN DOLLARS? Are you out of your minds? You’re just trying to create a great runup for your buddies at the funds by under-pricing. Now I understand; you don’t give a fuck about hackoff. This is just one deal for you. But you deal with Semper and the rest every day and you don’t mind getting a little less commission and screwing hackoff so long as Semper and all the other funds are happy. No fucking way…”
“Larry…” starts Harvey.
“Which part of ‘no fucking way’ don’t you understand?”
“What happens if we price it higher?” asks Donna, calm but not smiling. “Won’t you be able to sell the issue?”
“We don’t recommend it,” says Gutfreund. “Yeah, we’d probably sell the issue, but some of the orders are soft and might back out at a higher price. Then, the big problem is that there might not be enough upside to keep people buying. The stock might not move up or might even move down on opening day. That would be a shitty start; maybe even a busted IPO.”
“It’s a pretty shitty start to be below the midpoint of the range,” says Larry. “What kind of signal is that?”
“We don’t think that’s a problem,” says Harvey. “Everyone knows the market’s been weak the last couple of weeks. It just shows that we’re pricing rationally.”
“It just shows that you’re pricing to help your buddies at the funds,” says Larry.
“Look,” Donna says. “Why don’t you Barcourt guys clear out of the room for a while. We need to consult with the Pricing Committee of our Board.”
Larry looks like he is going to say something but doesn’t. He stares at the bankers without expression as they leave the room. “Fucking crooks. Do you think the room is bugged? Fuck you guys if you’re listening,” he says to the light fixture.
It takes a few minutes to get the Board on the phone. Joseph Windaw and Joanne Ankers, along with Larry, are the formal Pricing Committee, but Franklin Adams has asked to be included on the call if available which he is. Donna is in the room, of course; and the Chief Counsel, Aaron Smyth, is on the phone taking notes for minutes.
Larry angrily but briefly and completely explains Barcourt’s recommendation of fourteen dollars.
“What are you recommending, Larry?” Joseph Windaw asks.
“Tell them to go fuck themselves. The price is eighteen dollars.”
“That won’t work,” says Windaw. “The market is weak. The book is light. That’s irrational pricing. They won’t do it because the market will know its irrational. Remember, the funds can tell what the cover was by the number of shares they get. If they get anything NEAR what they asked for—”
“Okay, seventeen,” says Larry. “I’m a reasonable guy.”
“Still too high,” says Windaw. “Look, Larry, Donna — you guys did a great job. Getting the book as high as it is in this market is an accomplishment. Fourteen isn’t bad; the company will get over sixty-five million net and even more if they exercise the shoe’ Let’s go with it. If we have a good runup, the funds are happy…”
“Why do we care if the fucking funds are happy?” asks Larry. “Barcourt cares but we don’t.”
“We do, Lar,” says Donna. “We DO care if the funds are happy. We want Tommy Chen to be a hero and a happy little boy. We want him to buy more hackoff stock. Then it goes up. Then we do a secondary and sell more stock at a much higher price and we can even sell some ourselves then and take some money off the table. We DO want them to be happy.”
“Why don’t we come back to them at sixteen dollars?” asks Joanne Ankers. “That’s reasonable and we can hear what they have to say. We can always back off that if they don’t agree.”
“I’m not backing off anything,” says Larry. “When I give these guys our price I’m not coming down. So I’ll tell them sixteen or no deal and I’ll mean it.”
“You can’t back out after coming so far,” says Joanne. “You can’t.”
“Just watch me! I’m asking the Committee for authorization to take a firm position at sixteen dollars per share.”
“We can always back off that,” Joanne says .
“No,” says Donna. “No. Larry means firm and he’ll be out of the building if he doesn’t get it.”
There is a silence.
“Larry,” says Joseph gently. “We don’t think you should take that hard a stance. I know how you feel, but we’ve got to move forward. If the bankers don’t like the price, it gives them an excuse not to do a good job supporting the stock in the aftermarket.”
“Are you worried about your banker buddies, too?” says Larry. “I thought you were tough enough to say ‘no’ to them. It’s good for them to hear that.”
“I have no ‘buddies’,” answers Joseph. “I’m in it for the money same as you all should be.”
“I’ll quit before I say ‘yes’ to fourteen dollars,” says Larry. “And there’s no IPO if I quit.”
After another silence Donna says: “If the committee doesn’t mind my butting in, I’d suggest Larry be authorized to take an absolutely firm stand at fifteen dollars. I think we’ll probably get it. It’s the midpoint of the range.”
“I don’t like risking everything for one roll of the dice,” says Joanne. “It’s less than five million difference to the company if we go at fourteen instead of fifteen.”
NO BALLS, Larry writes on a note to Donna.
“I’ll support fifteen dollars,” says Joseph. “I’m not sure we have to go to the mat, but I’ll take Donna’s word for it.”
“Okay,” says Joanne. “I don’t like doing business this way but we’re all tired. Good luck. I assume you’ll offer sixteen and the agree to fifteen as a bottom line.”
“No,” Larry answers. “You assume wrong. I’m not backing down again. Since the committee doesn’t have the balls to go for sixteen, I’m telling Barcourt it’s fifteen dollars: take it or leave it.”
“I don’t advise that,” says Joanne. “But you guys are there. Good luck.”
When the bankers come back in the room, Larry says: “My board hates the price. It ought to be seventeen dollars. But we think you guys’ll screw up the deal at that price and won’t support us in the aftermarket. But we’re not going below fifteen.”
“We advise fourteen,” says Gutfreund when Maklin is slow to respond.
“Larry has board authorization to walk at less than fifteen,” says Donna.