How Wall Street Swindled LinkedIn on its IPO

If you follow business news, then you know social business networking site LinkedIn went public yesterday. Its stock started at $45 per share and immediately skyrocketed to prices of more than double. This morning, it's trading above $100 per share. When this sort of thing happens, it's usually interpreted as great news for a company; after all, investors are very interested. In fact, this really means that the IPO was seriously mispriced by the bankers who structured it.

Henry Blodget from Business Insider explained yesterday:

LinkedIn's stock is trading above $80 a share this morning. Bank of America and Morgan Stanley sold the same stock to their best institutional clients at $45 a share last night. The value of LinkedIn-the-company, it seems safe to say, has not appreciated by 90%+ in the past 12 hours. And that means that, on its underwriters' advice, LinkedIn sold its stock too cheap. It also means that the institutional investors who bought LinkedIn's stock last night are high-fiving each other this morning, celebrating their instantaneous 90% gain. (Lots of them are probably also dumping some stock).

By underpricing the stock, Morgan and BOFA gave their best institutional clients a gift of at least $175 million. And that money came out of LinkedIn's pockets and the pockets of the LinkedIn shareholders who sold on the deal.

Of course, since he wrote this, the prices gone even higher. At $100, that gift increases in size to $275 million. These are proceeds that LinkedIn loses out on. So while it might celebrate its share price, their offering came at a pretty huge cost -- probably around $300 million.

Read the full story at Business Insider.

Presented by

Daniel Indiviglio was an associate editor at The Atlantic from 2009 through 2011. He is now the Washington, D.C.-based columnist for Reuters Breakingviews. He is also a 2011 Robert Novak Journalism Fellow through the Phillips Foundation. More

Indiviglio has also written for Forbes. Prior to becoming a journalist, he spent several years working as an investment banker and a consultant.

A New York City Minute, Frozen in Time

This wildly inventive short film takes you on a whirling, spinning tour of the Big Apple

Join the Discussion

After you comment, click Post. If you’re not already logged in you will be asked to log in or register with Disqus.

Please note that The Atlantic's account system is separate from our commenting system. To log in or register with The Atlantic, use the Sign In button at the top of every page.

blog comments powered by Disqus

Video

A New York City Minute, Frozen in Time

This short film takes you on a whirling tour of the Big Apple

Video

What Happened to the Milky Way?

Light pollution has taken away our ability to see the stars. Can we save the night sky?

Video

The Faces of #BlackLivesMatter

Scenes from a recent protest in New York City

Video

Ruth Bader Ginsburg on Life

The Supreme Court justice talks gender equality and marriage.

Video

The Pentagon's $1.5 Trillion Mistake

The F-35 fighter jet was supposed to do everything. Instead, it can barely do anything.

More in Business

Just In