Costs and Risks of Each Type of IPO
Skype has a number of choices for what type of IPO it will conduct. While the auction method used by Google seems attractive for Skype’s public image, they must also consider the profitability and lower risk of other methods. Traditional IPOs offer a higher success rate and higher profits. In this case, Skype would stand to gain a lot by having the investment banks that underwrite the loan guarantee the sale of some or all of the shares to be sold publicly. The investment banks would in turn sell the stock to various preferred investors, usually at a price the issuer and the underwriter have agreed to in advance.
With this type of deal, the issuer has protected itself and ensured profits by putting the burden on the investment banks to sell the stock. An auction, on the other hand, would mean that the issuer would have less control over the price. The buyers can essentially set the prices themselves, which could be bad or good for the issuer. The issuer would also have less control over who gets to buy the stock, because in an auction all interested parties have an equal chance to purchase stock.
Investment banks are less likely to underwrite auction IPOs because they are more risky than traditional IPOs, and usually lead to lower profits. Skype must consider both options in this case. Part of their public image as a company is connecting people around the world for free. An auction would help reinforce this image of a benevolent giant. Google’s precedent should also give weight to their decision; though Google’s auction might not have resulted in the best profits, it was a victory for not only Google’s public image, but for the investors themselves.
Of course, Skype must also consider that a traditional IPO will create more money for them. It will also increase their chances of getting a major investment bank to underwrite their IPO. The money they stand to make with this method should be a major consideration for Skype, especially if they plan to use the money to fund future expansions in their growing business. Works Cited Abell, John C. (2009, April 14). Skype to ipo early next year. Wired, Retrieved from http://www. wired. com/epicenter/2009/04/skype-to-ipo-ea/
Baertlein, Lisa. (2004, April 30). Google ipo at $2. 7 billion. Reuters, Retrieved from http://www. ciol. com/content/news/2004/104043001. asp Beyers, Tim. (2009, July 28). Three Reasons to Buy the Skype IPO. The Motley Fool, Retrieved from http://www. fool. com/investing/general/2009/07/28/3-reasons-to-buy-the-skype-ipo. aspx Carter, Adrienne. (2005, January 10). Morningstar Follows Google’s Lead. Business Week, Retrieved from http://www. businessweek. com/bwdaily/dnflash/jan2005/nf20050110_8372_db035. htm