The Chief Executive of Chinese Internet retailer E-commerce China Dangdang Inc may be angry over the pricing of his company's initial public offering, but that does not mean he has any basis for a lawsuit, US securities lawyers said. Dangdang CEO Li Guoqing recently wrote he was unhappy with underwriter Morgan Stanley for setting his company's price too low in its IPO.
-- CEO Li wishes he had chosen Goldman Sachs for IPO
-- Lawyers say Dangdang would have trouble with lawsuit
After Dangdang's shares shot up 87 percent in their first day of trading, CEO Li wrote on a Twitter-like microblogging site popular in China that he should have signed up with another underwriter. Every major investment bank in the early part of the decade was accused of deliberately underpricing IPOs to enrich themselves and favoured clients and not all of the accusations stuck. But US-based securities lawyers said companies cannot fault underwriters for giving their best price advice.
Suits were mostly brought by IPO investors who were upset by underwriters who allegedly favoured particular investors. But a few issuers expressed anger over IPO under-pricing. Bankrupt Internet toy seller eToys sued Goldman Sachs Group Inc in 2002 for intentionally underpricing its 1999 IPO and taking kickbacks from its customers, who profited when the shares soared. Executives from online mortgage provider E-loan Inc also expressed frustration with Goldman Sachs over its IPO price.
A strong first day share pop can help a company drum up interest for larger follow on stock sales. But it also means the company and anyone selling shares alongside the company in the IPO - such as the founders - makes less money. One founder is clearly angry.
He also quarrelled with two users on the weibo service who claimed to be Morgan Stanley employees and who tried to defend the New York-based investment bank. Morgan Stanley, which was one of the lead underwriters on Dangdang's $272 million IPO in December, and the target of Li's anger, denied the comments were written by its employees and condemned the behaviour, which it said could damage a company's brand and reputation.
Dangdang confirmed the authenticity of Li's comments and said the remarks were meant to reflect Li's personal opinions, reveal the wounds he had suffered and serve as a warning for those wanting to list in the United States. In terms of all companies making their debut in the United States, half of the top 10 biggest first-day gainers in the last decade have been from China. Dangdang's 87 pct first day pop, which ranks ninth, is the smallest among them, according to data from Ipreo, which provides capital markets data and analytic services.
Morgan Stanley is a lead bank on three of those 10 companies and Goldman Sachs is a lead on four, according to the data. Youku.com Inc, which made its debut on the same day as Dangdang, rose 161 percent to become the second-biggest first day pop in the United States in the last decade. Goldman Sachs was the lead underwriter on that IPO.
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