American History 1988
Chapter 228 - 222 Go Public!

Chapter 228: Chapter 222 Go Public!

"Stock issuance?" Dean was confused; Byte Company hadn’t even gone public yet.

"Yes," Daniel had to explain patiently, "There are some big clients who are very optimistic about the development of Byte Company."

This matter had to start with Merrill Lynch joining the underwriting syndicate, thanks to Anthony Kennedy’s introduction.

Through him as an intermediary, Dean had connected with the people at Merrill Lynch last month.

The Daniel Thalli in front of him was one of the Irish-descended senior executives at Merrill Lynch; he had previously spoken with Dean on the phone, and their exchanges had been quite harmonious.

Latter, Dean revealed his intention to have Merrill Lynch underwrite some of the shares to the people at Morgan Stanley.

They agreed because Morgan Stanley had been planning to find several other investment banks to share the risk.

So, Morgan Stanley, Merrill Lynch, and Salomon Brothers sat down together to discuss the underwriting plan for Byte Company.

According to the original fundraising need of 100 million US Dollars, they needed to find potential clients willing to take over this part of the shares.

This was a pre-IPO over-the-counter trade that didn’t involve specific transaction amounts and didn’t include a written paper contract.

The investment banks only needed to inquire about the subscription intentions of various investment institutions, and then assess the volume and pricing of the IPO’s new shares based on this.

Only after obtaining subscription data that matched the funds raised by the listed company would Morgan Stanley sign an underwriting contract with Byte Company.

Otherwise, how could the risk of underwriting hundreds of millions of dollars in shares be shared? Wall Street had long formed a mature underwriting system.

In seeking potential clients separately and finally sitting together with subscription intentions, the three investment banks found,

that many customers were interested in Byte Company’s new shares—big-name asset management companies like Prudential, Fidelity, State Street, and UBS all had strong subscription interests.

Especially insurance companies and investment banks, which have a large amount of funds.

And how to manage those funds to bring more returns is the main business of these investment institutions.

Purchasing bonds, shares, and venture capital are all among the means.

The former two are introduced by Wall Street’s financial services companies, offering them suitable financial products.

Morgan Stanley and Merrill Lynch play such an intermediary role, of course, they also have their own investment business.

Now due to Byte Company’s significant reputation on Wall Street and the rotating coverage by major media, its IPO has attracted many international investment banks.

Especially Merrill Lynch—its clients’ subscription for shares even exceeded half of the financing amount.

"Daniel, so you’re saying the stock issuance is because Merrill Lynch’s clients subscribed to a number of shares beyond the planned amount?"

"Yes, Dean," Daniel tried to persuade him, "You know, some clients aren’t so easy to turn down.

Of course, this is also good for Byte Company because you can raise more development funds."

Since 1988, Merrill Lynch has been the financial company that has underwritten the most bonds and stocks on Wall Street.

This record has been maintained for three years in a row, and in the field of underwriting business, it has more client resources than Morgan Stanley.

If it weren’t for its initial quote not being attractive to Dean, and if Anthony Kennedy’s call had been just a step too late, it might well have been the chief underwriter.

"How much stock do you plan to issue?" Dean did not agree to it immediately; it was a decision that needed careful consideration.

"If necessary, Merrill Lynch can raise 200 million US Dollars for Byte Company." The foundation of Wall Street’s number one brokerage firm was undoubtedly evident.

"No, that’s too much—Byte Company doesn’t need that much capital for the time being."

Dean considered for a moment, then shook his head, rejecting Daniel’s proposal.

million US Dollars would mean that Byte Company’s IPO would have to release 12% of its equity.

Everyone knows new shares will rise, but that’s later on the secondary market, the stock market.

The current underwriting stage doesn’t even count as a primary market yet.

When underwriters sell the shares to various investment institutions, that will be the primary market.

There are at least two levels of price differences in between; the more diluted, the more Dean, as an individual shareholder, stands to lose.

"Okay, what about 8%? That’s only a little more than your expected funding amount."

Daniel knew the initial high demand would not be possible, so to quickly reach an agreement, he voluntarily lowered the request.

"I need to discuss with my shareholders, Daniel. You know, this is not part of our plan."

Raising funds as a listed company is not a matter of more is better because it’s closely related to the company’s subsequent development plans.

If the subsequent operational expansion doesn’t require that much money, then part of the financing amount is likely to be wasted.

"Ok, I understand, but please trust the credibility and strength of Merrill Lynch.

In the underwriting contract, Merrill Lynch can offer Byte Company more favorable conditions,

such as stabilizing Byte Company’s stock price, increasing the transaction volume in the secondary market, formulating a defense plan against hostile takeovers for Byte Company, etc...

And personally, those private foundations that represent significant figures will owe you a favor.

If the opportunity arises later, I will introduce you to them."

As famous investment banks on Wall Street, these financial giants can do many things.

Beyond business favours, they also have a network of personal relationships.

Moreover, after the company completes its IPO, it’s not the end of everything; Dean and his team will still need the services of these investment banks.

Daniel offered so many conditions in an attempt to convince Dean to issue more IPO shares.

As the chief underwriter, Morgan Stanley must take at least half of the underwriting share.

Only the remainder could be allocated to Merrill Lynch and Salomon Brothers—that’s their right as the chief underwriter.

So if Merrill Lynch wants to underwrite more shares, it will have to figure it out on its own.

They either reach an agreement with Solomon, or convince Byte Company to expand the scale of the IPO.

Clearly, Merrill Lynch chose the latter because its appetite had already exceeded what was left on the plate, and because of its special relationship with Dean.

Dean stepped aside to explain Merrill Lynch’s intentions to Valentine and his group, which included the preferential terms offered by the latter, relationships aside.

"How many shares are they planning to issue additionally?" That was the key question; no one wanted to dilute their own shares.

"The scale of financing will expand to 133 million US Dollars, which means releasing 8% of equity."

Dean felt that this percentage was barely acceptable, as the additional 2% spread across everyone was just a negligible amount.

"Sounds good," Valentine nodded with his chin resting on his hand, casting a vote in favor.

Sequoia Capital planned to hold a portion of Byte Company’s shares for the long term, and the terms proposed by Merrill Lynch were favorable for the growth of Byte Company.

"I have no objections," Durell also expressed his agreement, as KeyPoint Ventures shared the same intention as Sequoia Capital.

They had all seen Dean’s "Prospective Plan," and only a fool would jump ship early.

"You know me, Dean," David Morgentaler had never opposed Dean’s decision, viewing him as a comrade-in-arms for shared fortunes.

As for Arthur Lock... well, his opinion wasn’t important.

"Then it’s settled, we’ll finalize the contract today."

Dean and his group were on a business trip this time, which included several key shareholders and a team of lawyers.

This included the son of Anthony Kennedy, Gregory from the Sullivan Cromwell law firm.

Its headquarters was in New York, a prominent white-shoe firm.

After Merrill Lynch and Byte Company quickly reached an agreement, representatives from the three Wall Street investment banks sat down with the people from Byte Company.

"Gentlemen, this is the underwriting contract we have jointly drafted.

As per the previous verbal agreement, we are to finance 133 million US Dollars, releasing an 8% equity stake.

Regarding stock pricing and the share breakdown, it’s best to decide after the roadshow."

With a nod from Richard Fischer, the contract was distributed before the representatives of both parties.

Dean took it, glanced over quickly, aside from the information Richard had just mentioned.

The contract also expounded on the terms of underwriting, such as price stabilization measures.

When the price of the stock invested by the underwriter in the primary market exceeds the underwriting price by 8%, Morgan Stanley needs to compensate Byte Company.

This could be through direct rebates or a transfer of shares, and the play here was somewhat complicated.

Of course, when offering high-risk underwriting services, Byte Company also needed to fulfill its obligations.

For example, during the IPO period, there should not be any major scandals, as negative impacts from such events that lead to sluggish stock trading

Would mean Byte Company would have to bear part of the losses, as per the standard clauses in an underwriting contract.

After scanning the document roughly a couple of times, Dean handed it to the lawyers beside him for due diligence.

Most of the terms were well understood by both parties; they were just formalizing and legalizing them now.

Quickly, after receiving a nod from the lawyers on his side, Dean picked up his pen and signed the contract.

Then the parties exchanged contracts and signed again.

With a snap, the pen was put down, and Byte Company officially took its first step toward going public.

Applauding, sudden applause erupted in the conference room.

Dean looked up; Richard Fischer was clapping and smiling at him.

"Congratulations, Dean. Byte Company’s IPO is now half successful."

"That sounds more like Morgan Stanley tooting its own horn, but I hope it’s true,"

"Haha," everyone laughed.

"Go Public!" Suddenly, Daniel Thalli swung open a bottle of champagne.

The splashing foam made the female assistants giggle as they dodged.

"Go Public!" Valentine shouted with an uplifted arm.

"Go Public!" More and more people joined in.

"Go Public!" Dean laughed and clapped.

Go Public! The conference room erupted with synchronized cheers.

Champagne sprayed, glasses clinked, and everyone toasted with smiles all around.

In a few months, Wall Street would once again create dozens of millionaires, and as middlemen, they would also reap a hefty profit.

When the atmosphere calmed down a bit, Richard clapped his hands to signal everyone to be quiet.

"Fellas, the IPO is half successful, and now the other half awaits our completion."

His meticulous suit was covered in splashes of champagne, but he did not mind.

"Dean, are you ready for the roadshow that follows?"

Now was the time for Morgan Stanley to wield the baton in its hands.