The IPO Buzz: Room Service

For investors checking out of the Morgans Hotel Group (Nasdaq: MHGC) IPO during its first day of trading, things did get expensive.

 

Morgans Hotel, which owns and operates the luxury hotels mentioned above plus several others, offered 18 million shares at $20 each last week.

 

The IPO opened at $19.65 per share, DOWN 35 cents per share from its initial offering price.

 

It did trade to a day’s high of $20.02 before closing at $19.89 per share on a volume of nearly 7 million shares. Some blood was spilled in the Land of IPOs. For the “flippers,” it was expensive to check out of the Morgans Hotel IPO.

 

It was a bit like ordering eggs Benedict from a luxe hotel’s room service and finding them cold on delivery -– with a $25 charge on your bill.

 

The Morgans Hotel Group was the first luxury hotel to go public, according to available records. And there had to be many eyes watching to see how well its IPO was received. Had the deal soared off into outer space, you could expect more such offerings.

 

A classic example was the eBay (NYSE: EBAY) IPO of 1998. eBay was and still is a leader in the Internet industrial sector.

 

On Sept. 24, 1998, eBay offered 3.5 million shares at $18 each. The IPO closed its opening day at $47.38 per share, UP 16.2 percent from its initial offering price. Since then, eBay has split its stock four times. Its initial offering price has been adjusted to 75 cents per share. It closed on Friday, February 17, 2006, at $41.31 per share, UP 5,408 percent from its initial offering price.

 

The eBay offering was the first of the dot-com IPOs that swept thought Wall Street from late 1998 to late 2000.

 

Note: This was a case of an industrial leader being the first to price its IPO, and seeing its shares score big time in the aftermarket. Many dot-com IPOs followed in its wake.  

 

In contrast, major league baseball IPOs didn’t catch on in 1998.

 

The Cleveland Indians Baseball Co. offered 4 million shares at $15 each on June 4, 1998. The IPO closed its opening day at $14.75 per share, DOWN 25 cents a share. No moonshot there, and, months later, its IPO collapsed in the aftermarket.

 

When the Cleveland Indians IPO was priced in 1998, the team was in first place in the American League. On Wall Street, it was in the basement.

 

At the time, there were unconfirmed rumors that the New York Yankees and the Pittsburg Pirates also were talking about going public also. But a lot depended upon the success of the Cleveland Indians IPO.

 

In February 2000, the Cleveland Indians Baseball Co. was quietly acquired for $22.61 per share. Nevertheless, that was better than what happened to most of the dot-com IPOs.

 

Note: This was a case of an industrial leader being the first to price its IPO and seeing its shares flop in the aftermarket. None of its competitors were to follow in its wake.  

 

This is a shortened week for the financial markets, which will be closed on Monday for the Presidents Day holiday. Nevertheless, bankers are planning to price four IPOs.