Greenshoe - primary or secondary
Quick question for those of you working in IBD/ECM: When an IPO has a greenshoe, is there a rule / rule of thumb for where the greenshoe shares have to come from? My prior, as it's an option that's exercisable by the issuer, is that it should be mainly primary shares (what kind of shareholder would agree to offer one?).
But am I correct? Is it possible to have secondary shares as part of the greenshoe? If so, what kind of shareholders would agree to that?
Generally you want the company to raise everything it needs and then excess liquidity can be sold thru a secondary.
Greenshoe can be primary or secondary. Why would it matter if it's secondary? Sponsors are typucally going to want liquidity and doing so through the shoe ensures that they will only get liquidity if there's sufficient demand.
Can it? I know sponsors and shareholders want liquidity, but do they want it that much (i.e. so much that they're willing to write an option on 15% of the offering in exchange for it)? If there are multiple shareholders (or the offering is part primary, part secondary), who participates in the greenshoe?
Having gone through a few legal notices, almost all of them seem to be 100% secondary btw. Not seeing any where the company offered more shares through the greenshoe
Look more.
The company will specify exactly what shares the greenshoe will be made up of in the s-1 filing. Check the shareholders table, it will say something like "shares to be issued if overallotment is fully exercised", see who is offering the shares, if you cannot find it there, go to the "use of proceeds" section, it should then say there what they will do with the extra proceeds from the overallotment, hence itll be primary. If the full shoe isnt exercised, then it is usually proportional.
greenshoe provision question (Originally Posted: 12/27/2008)
hi all,
i was wondering if someone could give me a good explanation for how exactly the green-shoe/over-allotment provisions work in an IPO.
as it is my understanding a typical green-shoe allows the underwriter to oversell the initial offering size by 15% along with a call option to close out the short position struck at the initial offer price. green-shoes are supposed to help stabilize the stock price after the ipo as well as to meet excess demand for the stock.
there are several points on which i'm somewhat confused:
is the underwriter allowed to buy these shares from the issuer even if they don't over-allot the initial offering? in other words, say the stock starts trading and jumps 30% on the first day of trading, the underwriter cannot cash in on the option unless they had initially over-allotted the stock at the initial offering price, right?
when the underwriter exercises the option, from whom are they "buying back" the shares? and from whom did they borrow the shares to begin with in adopting their short position? if they borrow shares from the issuer and had shorted into the open market how can they "buy back" more shares from the issuer? also if these shares need to be returned to the issuer in closing out the position how have we met the excess demand in the market?
sorry if these questions are not well-worded. i hope someone can clarify.
thanks!
this paper [written by two of my favorite professors] should answer your questions. i haven't read it since business school though, so i am not sure about specifics.
http://www.sbs.ox.ac.uk/NR/rdonlyres/7C2DEAD7-C605-4F9F-B23B-D57DC83D9A…
Anybody who can answer these?
Bump
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