Finance

When the management of a company feels that they should make the company public, one option they can always use is to offer its shares to the public through an Initial Public Offer (I.P.O.). This is usually a means through which some companies come up with capital. There are two types of IPOs. The first one is the traditional method whereby a company floats its shares in the stock market through underwriting banks or stock brokerage firms. The second method, which is relatively new in the stock market is the auction of stock online otherwise referred to as the Dutch auction. In this method, the shares are sold online to bidders who are otherwise exposed to the stock under equal conditions so that none of them has an edge over the other. Bidding is done upon which a price is settled on. This is the best option for E-bay to auction Skype as most of the users of Skype are actually online customers. Choosing the online option is the best due to a lot of advantages it offers the company over the traditional method.

Firstly, it ensures that the securities of a company do not stagnate. This is due to the fact that in traditional IPOs, the prices of stocks rise almost exponentially immediately they are floated. This would make the investors keen on market prices to sell frequently without the profits piling on the companys capital. Therefore, the traditional IPOs make the investors richer than increase company capital instantly. When carrying out a traditional IPO, the company has to enlist the services of an underwriting company. Not only is this costly in comparison to the online auction in terms of charges, but it also plunges the company into uncertainty. Uncertainty arises when such banks allocate more shares to a select-few of their customers so that they can benefit from business favors. One of the ways through which they are likely to succeed in doing this is by the use of practices such as insider trading. Whether they register at the Securities and Exchange Commission to do this, the practice is likely to undermine the fairness in trading of stocks.  This negates the need to have a fair allocation of shares to all the interested parties. When a select-few of the interested parties gain, then the assumption that it is a Public Offer ceases to exist. Therefore, in as much as the traditional IPO is likely to have a sudden jump in prices that would interest investors much, the kind of IPO that would ensure a more stable climb in profits is the online auction which is cheaper, fairer and keeps the profitability of the company at a reasonable level.

The kind of investors that this auction is likely to attract is the savers. These are investors who as opposed to the speculators, tend to buy shares and let their prices mature so that they can get reasonable profits. Drawn from the fact that online auction ensures prices of stock do not sky rocket on the initial period of being floated, the speculators are likely to shy off as this deal would make them reap minimal profits. In the online IPO that Google held, the prices did not soar much. A healthy range of an 18 shift was noted from an initial price of 85 to 104.05. This is a fair deal as most speculators are mainly interested in prices that soar exponentially at the initial stages. We can therefore conclude that the sale of Skype through a traditional IPO is likely to affect EBay as an entity and therefore would threaten the interests of the investors who own EBay. As such, only the kind of investors who are in the business to stay will keep their stocks in the original company and in the Skype portion that is being sold.

The online selling of shares should be used due to the fact that when compared to the ones that were done by Google and Morningstar, the likelihood of success is very high. Google chose an underwriting bank to evaluate its shares first and propose a period within which floating its shares would be safe. The charges to carry out the two procedures were lower than if Google chose the traditional IPO. Lower prices for such services would mean that the company maintains a healthy capital base due to the fact that the charges that the banks require border on a percentage of the whole value of shares to be floated at the IPO. During the sale of Google, its profitability was not quite stable. Its sale went on to bring about profits and much stronger capital base. As at last year, the performance of Skype indicated that its growth was on a slump due the effects of the financial crisis that had affected economies across the world. The similar conditions as at time of being offered for online auction indicate a trend. Google emerged out of its financial uncertainty stronger after the sale. Therefore, the probability that the sale of Skype would salvage its stunting growth is very high.

Morningstar, on the other hand, is a Wall Street company and as such tried democratizing the issuance of shares by undertaking auction IPO. One way or the other, its market plan is more defined and has customers who are mainly institutions. As such, its IPO would not face a similar condition to the one that EBay is likely to face when auctioning its stock. All the same, there are standard lessons that can still be learnt from the sale of Morningstar. The reliance that Morningstar has had with institutional investors let it down when it decided to use auction IPO due to the fact that share prices did not stabilize steadily. This would not be a threat to Skype as it is not a Wall Street company with institutional investors. That does not mean that measures to stabilize the shares should not be taken. As stated above, the auction IPO does not experience sky-rocketing prices in the initial stages. As such, Skype seems to have escaped the predicaments that afflicted Morningstar.

Both Google and Morningstar have experienced faltering stock prices when the market goes through a bearish face. EBay needs to come up with ways of stabilizing market capital during this period as the net capitalization of Skype is bound to be affected. One way of doing this is by doing successive IPOs that are well-spaced so that expenses are minimal and do not dent the capital. Another means is by ensuring that the shares reach as many investors as they can. This would in turn spread the risk over a big number of people so that in the event that share prices start experiencing a bearish run, the cover is ample.

The costs involved in the traditional IPO are numerous. The documentation procedures and time dedicated to carrying out a successful IPO weighs heavily on the company. This is due to the numerous registration procedures at the Securities and Exchange Commission. Decision-making will be rendered public hence some bad decisions. The pressure to grow will be profound than before as the purpose of the IPO is to raise capital that can enable it do so. The costs of carrying out an IPO are high. This due to the fact that the company employees will be paid allowances to help in the running of the whole IPO processes like documentation. Other charges include bank underwriting fees. A dip in stock prices might attract lawsuits by shareholders who feel duped. On the other hand, auction IPOs present a slightly different risk factor. The slow rising stock prices do not favor all sorts of companies. These include companies that have a very big network of institutional investors. The investors are usually interested in stable share prices that also rise faster hence ensuring their constant benefit from the trading of stocks. The means of deciding a share or stock price by bidding may affect the final outcome due to its egalitarian nature. Prospective bids might come up with comparatively low prices hence making investors to shun the shares.

In conclusion, we see the auction IPO as having an edge over the traditional IPO in the case of EBay wanting to float the shares of Skype in the public domain. It has been proved otherwise that in as much as the other companies experienced challenges, this did not last and as such, they are now doing comparatively well. Skype might be a bigger success if all the steps mentioned are taken into consideration by the parties involved.