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Twitter's goal in IPO: to avoid becoming Facebook

REFILE - ADDING INFORMATION The Twitter Inc. logo is displayed on screens prior to its IPO on the floor of the New York Stock Exchange in Ne
REFILE - ADDING INFORMATION The Twitter Inc. logo is displayed on screens prior to its IPO on the floor of the New York Stock Exchange in Ne

By Olivia Oran

(Reuters) - As Twitter Inc's chief financial officer planned the company's initial public offering this year, he had one overriding goal: to avoid becoming the next Facebook Inc.

Twitter CFO Mike Gupta grilled banks about how to sidestep the problems that beset Facebook's IPO from start to finish, asking detailed questions about everything from how to pick an exchange to how to communicate with analysts.

"They were really information and data hogs," said one person who worked on the process. "They wanted a lot of different perspectives and to make sure that they did this right."

In the end, Twitter made different choices from its rival social networking site for its IPO. Facebook selected Morgan Stanley as its lead underwriter, while Twitter picked Goldman Sachs. Facebook listed on Nasdaq, where trading glitches marred the initial hours of trading, while Twitter listed on the New York Stock Exchange.

Facebook Chief Executive Mark Zuckerberg skipped out on at least one major meeting with investors during the company's IPO roadshow, but Twitter's CEO Dick Costolo attended all meetings across the country.

"The whole thing was very business-like and very professional," said a second source who worked on the process. "They decided there was no wearing hoodies with investors," he added, referring to the hooded sweatshirts that have become a trademark of Facebook's Zuckerberg.

Twitter also made sure its shares were sold for a low enough price to attract strong interest and keep shares high in their early days of trading, after Facebook's shares dropped in the days after its IPO. While Twitter's shares were down nearly 6 percent to $42.26 in Friday afternoon trading, they were still trading well above their IPO price of $26.

Bankers said Gupta and Twitter's director of investor relations Nils Erdmann looked closely at what worked - and what did not - for other Internet companies that went public, including Pandora Media Inc, Zynga Inc and LinkedIn Corp.

IT TAKES A VILLAGE

Gupta, Erdmann, and Costolo relied on a large group of advisers to guide them. They frequently turned to Twitter board member Peter Currie, a Silicon Valley veteran and the CFO of Netscape during the 1990s, for advice.

They also talked routinely with Goldman's lead Twitter banker, Anthony Noto. The New York-based Noto was a former top ranked equity research analyst who left Goldman in 2008 to serve as an executive for the National Football League. He rejoined the firm just two years later to serve as the co-head of global technology, media and telecom investment banking.

Noto has built the team into the No.1 U.S. underwriter for tech IPOs so far this year, over Morgan Stanley and rival banker Michael Grimes who led the Facebook IPO, as well as other high profile deals including Google and LinkedIn, according to Reuters data.

Goldman has been lead underwriter in more than 16 technology company IPOs since January, including software darling Tableau Software Inc. For the same period last year Goldman was fifth, according to Thomson Reuters data.

The Twitter deal was an important win for Goldman Sachs, after it was passed over for the lead role in the Facebook, LinkedIn and Pandora deals in recent years.

Those that have worked with Noto praise his low-key, no-nonsense style.

"Every banker talks about wanting to build a relationship but after you do a deal with them, you are dropped like yesterday's newspaper," said Ed DiMaria, the chief financial officer of Bankrate Inc who first worked with Noto when he helped take his company public in June 2011. "With Anthony, it's not about getting paid or the next deal - it's about the relationship and how he can be helpful to the company."

Twitter could not be reached for immediate comment. Goldman Sachs and Morgan Stanley declined to comment.

TAKING RIVALS BY SURPRISE

Goldman quietly began working with Twitter in May, helping the company to draft its S-1 registration statement and submit it confidentially to regulators. News in late August that the company's IPO was already underway caught most other investment banks by surprise.

There was no formal pitch process to fill out the rest of the syndicate for the deal code-named Blue Jay, in honor of the company's bird logo, bankers said. Other banks - Morgan Stanley, JPMorgan, Bank of America and Deutsche Bank - were approached by the company and told that they needed a credit commitment if they wanted to be part of the deal.

As the company worked on the IPO with underwriters, it delved into areas, including how its shares should be allocated among the underwriters, and whether overpricing or underpricing a deal would hurt its brand.

Noto and his team were loath to take any risks that would jeopardize the deal such as putting too many shares in the hands of retail investors that would flip the stock on the first day of trading.

In the end, half of the 70 million shares that Twitter sold during the IPO ended up in the hands of ten long-term holders, including BlackRock, T. Rowe Price, Fidelity, Waddell & Reed and Jennison Associates, one source said.

Fidelity, T. Rowe Price, Wadell & Reed and Jennison declined to comment. BlackRock could not be reached for comment.

Demand for the IPO far outstripped the supply of shares - investors put in orders for 30 times as many shares as the company sold, investors said.

BEING CONSERVATIVE

The top three underwriters - Goldman, Morgan Stanley and JPMorgan - initially disagreed about where to price the deal, the sources said.

The company ultimately decided to price its IPO at $26 a share, even though underwriters thought about pricing it as high as $28. Twitter thought that it made sense to leave room for shares to jump on the first day, which they did, rising 73 percent. Had the company priced its shares at higher levels, it could have raised more than $1 billion extra.

Facebook, which priced its IPO at $38 a share, saw underwriters battle to keep its shares from dipping below the IPO price on the first day of trading. The shares continued to drop, falling as low as $17.55 in the months following the company's public debut. It took over a year for the stock to recover.

(Reporting by Olivia Oran in New York; Additional reporting by Sarah McBride and Alexei Oreskovic in San Francisco; Editing by Tim Dobbyn)

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