Tuesday, May 24, 2011

Who Cares Where LinkedIn's IPO Was Priced?

By Eric Jackson
RealMoney Contributor

5/23/2011 1:00 PM EDT
Click here for more stories by Eric Jackson

Since LinkedIn's (LNKD - commentary - Trade Now) IPO on Thursday, there's been a lot of chatter about whether the bankers properly priced the deal.

That simple sentence has a lot packed into it -- especially the word "properly."

The stock's offer price was hiked pretty significantly into Thursday's IPO ($42 to $45), and it was priced at the high end of the range. Many people, including me, thought that this IPO price seemed fancifully high.

When the stock immediately doubled on Thursday morning and then, as we approached noon, seemed close to tripling its IPO price, jaws were dropping on Wall Street. Pretty quickly, the armchair bloggers and journalists were asking how the investment banks (Morgan Stanley (MS- commentary - Trade Now) and Bank of America Merrill (BAC - commentary - Trade Now)) could have so mispriced the deal.

Henry Blodget of Business Insider said immediately that the bankers had left $100 million on the table, which investors pocketed instead of LinkedIn. Joe Nocera at The New York Times on Saturday said that this under-pricing by the bankers was a sign that the dangerous ways of dot-com era of the '90s had returned with a vengeance. Josh Brown at the Reformed Broker blog complained that LinkedIn hadn't used a Dutch auction system to price the deal as Google (GOOG - commentary - Trade Now) did (with Morgan Stanley's help, no less) in its 2004 IPO. (In a Dutch auction, bankers solicit bids before the public offering and set the IPO at the highest level at which the stock can be sold.)

Before we shoot the bankers (and I hate to defend them, since they're highly overpaid for what they do), I have to ask, who cares how they priced it?

Was LinkedIn irreparably harmed? Hardly. The company certainly didn't seem to be fuming about the IPO in the hours after the close. All the coverage it was getting from the press was basically crowning it the king of social networking (even though its moonshot IPO is probably going to be less than 10% the size of Facebook's).

LinkedIn raised less than $200 million from the IPO, and it sure looks as though it left money on the table. But management and the board chose to sell only 5.3% of their stock in the IPO. If prices hold up, they will get plenty from future secondary offerings.


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