-->Updated from 3:34 p.m.
Here's one reason for the heavy demand for Google's (GOOG:Nasdaq) shares Thursday: The company chose not to completely fill eligible bids in its IPO auction.
Some investors who had winning bids for more than a handful of shares were allocated 74.2% of the shares they had sought to purchase, TheStreet.com has learned. If that's true across the board, it suggests that Google priced its offering well below the level that bidding would have supported, helping to feed the stock's 18% surge Thursday.
To be sure, there's nothing improper about setting a low offering price that results in only partial fulfillment of winning bids. But the strategy is noteworthy because it helps give the shares a first-day pop. That runup is one of the things the auction route is supposed to eliminate, in the quest to help reap the greatest possible proceeds for the company going public.
Shares in the search-engine company rallied sharply with the long-awaited open of Nasdaq trading. The stock jumped to $100.01 on the first trade and traded as high as $103 and change before closing at $100.34, a sharp 18% rise. Each dollar an investor in Google's IPO makes in its first day of trading, in other words, is a theoretical dollar that Google has left on the table.
One institutional investor, who spoke on condition of anonymity, said that his firm had been allocated 74.2% of the number of shares in its winning bids. Another investor, also on condition of anonymity, said he'd received 371 Google shares after bidding for 500 -- again, a 74.2% allocation rate.
That allocation appeared to be higher for smaller investors, perhaps because of rounding issues. This reporter, whose bid for five shares was accepted (see disclosure below), was allocated four shares, or 80%.
The 74.2% allocation suggests that the search engine company, which along with early shareholders sold 19.6 million shares in its initial public offering of stock, received enough bids priced at $85 or above to sell as many as 26.4 million shares.
That excess demand helps explain why Google's shares rose Thursday: For every 742 shares that the company and insiders sold in the IPO, there was pre-existing demand for an additional 258.
The allocation also indicates that Google could have priced its deal higher than the $85 per share price it set in the IPO. A higher price, which would have eliminated bids placed at the low end of the range of successful bids in the IPO, would have left fewer winning bids, and a higher allocation rate for successful bidders.
A Google spokeswoman declined to comment Thursday.
The allocation illustrates the wiggle room that Google and its underwriters have had in the Dutch auction format that the company employed in its IPO.
In theory, after collecting bids from different investors -- each for a specific number of shares -- Google could have set a stock price high enough so that only 19.6 million bids would have been accepted, enabling winning bidders to receive 100% of the shares for which they had bid. That highest possible price is known as the"clearing price."
But Google, after having received a healthy amount of criticism over the way it conducted its IPO, evidently decided not to squeeze every last dollar out of Wall Street that it might have been able to.
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<ul> ~ http://www.thestreet.com/pf/tech/georgemannes/10179223.html</ul>
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