The rest of last week’s deals, three IPOs, never made it off the new-issues launching pad.

Two deals were postponed, which is the same as being dead in today’s IPO market. Instead of IPO, the operative letters become R.I.P., as in “Rest in Peace.” The other deal is now listed as “day to day,” which is almost the same as being dead in today’s IPO market.

The postponed deals were PRN (PRNC proposed) and WebSideStory (WSSI proposed). The lone “survivor” was eCOST.COM (ECST proposed), which moved into the “day to day” category.

But last week’s IPO news focused on the living -- Google.

Google’s aftermarket performance was a shocker.

Not only was the deal a Dutch auction (and Dutch auction IPOs generally trade around their offering prices in the aftermarket), but the offering’s size had been slashed.


“Cut a deal, cancel my (IPO) order,” has been the call on Wall Street for years. That strategy didn’t work this time.

Google’s new offering terms were reduced to 19.6 million shares at $85 to $95 each. The offering hoped to raise $1.76 billion. That was down from 25.6 million shares at $108 to $135 each. Under the initial terms, Google had hoped to raise $3.12 billion with its IPO.

The cut in the IPO’s size was a whopping 43.6 percent.

The Dutch auction:
Let’s take a look as past IPO Dutch auctions -- the best, the worst and the most recent.

Before the Google IPO hit the new-issues market, a total of 10 companies had used the Dutch auction system in going public, according to available records. Excluding the Andover.net IPO that popped for an opening-day gain of 252.1 percent, the rest broke even by the end of their first day of trading. Of those nine IPOs, six finished their opening day of trading above their initial offering prices and three closed below their IPO prices on their first day of trading. The average opening day loss -- yes loss -- for those nine Dutch auction IPOs was down 0.25 percent.

In addition, three of the nine deals were cut in size before being offering to investors.

The Best:
Peet’s Coffee & Tea (PEET: chart), an Emeryville, California-based coffee retailer, priced its Dutch auction of 3.3 million shares at $8 each on Jan. 26, 2001. The stock closed its opening day at $9.375 a share, up 17.2 percent from its initial offering price. By Jan. 20, 2001, the stock sold high at $16.75 before sinking to a low of $5.75 a share on March 22, 2001. But the Nasdaq Composite Index was leading a steep stock market collapse. On March 22, 2001, the Nasdaq had fallen 34 percent to close at 1,830.23 from a close of 2,772.73 on Jan. 30. 2001. On Friday, Aug. 20, 2004, Peet’s Coffee & Tee closed at $22.50 a share -- up 181.3 percent from its IPO price.

The Worst:
Nogatech, a Santa Clara, California-based computer chip provider for digital video images, priced its Dutch auction of 3.5 million shares at $12 each on May 19, 2000. The stock closed its opening day at $9.41 a share, down 21.6 percent from its initial offering price. On Oct. 24, 2000, Zoran (ZRAN: chart), a Sunnyvale, California-based developer of integrated circuits, acquired Nogatech for an exchange of stock. On Oct. 24, 2000, Zoran closed at $47.25 a share. Each share of Nogatech received 0.166 shares of Zoran. In May 2002, Zoran’s stock split 3 for 2. On Friday, Aug. 20, 2004, Zoran closed at $18.50 a share. That would make an investment in the Nogatech IPO worth about $4.60 a share -- down 61.6 percent from its IPO price.

The last Dutch auction IPO before Google:
New River Pharmaceuticals (NRPH: chart), a Radford, Virginia-based specialty pharmaceutical company focusing on developing safer and better versions of widely prescribed drugs, priced its Dutch auction of 4.2 million shares at $8 each on Aug. 8, 2004. The stock closed its opening day at $7.50 a share, down 6.3 percent from its initial offering price. On Friday, Aug. 20, 2004, New River Pharmaceuticals closed at $7.28 a share -- down 9 percent from its IPO price.

So then, why did the Google IPO, a Dutch auction, do so well in the aftermarket?

IPO professionals confirm the successful bidders got 74 percent of the stock they indicated for.

That means the offering price of $85 a share was below the clearing price of the deal.

The clearing price is the highest price it takes to sell all the shares in the offering.

In dropping the offering price below the clearing price, Google and its bankers made more bidders eligible to receive shares at the offering price. That put the auctioneers (or investment bankers, if you wish) in a position of not having enough stock to go around.

The answer to this problem: Cut back on the number of shares each successful bidder was to receive.