Biased Opinion on Palm IPO - Case Study Example

The IPO of Palm Biased Opinion on Palm IPO In view of the attitude that various parties had with regard to the Palm IPO proceedings, various issues emerge to illustrate the interest that each of the groups had in making their opinion or decision. In terms of the risks involved in making serious decisions such as IPOs, high level consultation and independence may be compromised due to different perspectives that the interest groups make of the developments (PWC 3). To illustrate the importance of the attitude held towards the moves behind the IPO decision, risks involved must be accepted by certain parties in order for the project to sustain the weight of support from the organization. Those parties in favor of the opinion of a cost-benefit analysis with regard to the risk-reward assessment fall on a different debate side when compared with protectionist groups critical of the move in case negative impacts emerge down the decision road. In view of these parties with an interest on the performance of the Palm IPO, analysts, investors and management can illustrate the stand off in opinion. Regarding the position taken by analysts, a fair share of bias emerges from opponents and proponents of the IPO conducted by the company. It illustrates the balance in both sides of analytical approaches adopted and eliminates a single view on appropriateness or failure of the company to practice good business. On one hand, a significant number of analysts hold the opinion that the valuation of the stocks and the company fit within ambitious business projections and anticipation of market valuation of the stock cannot be questioned by the market. Apparently, this opinion coincides well with the ambiguity in allocation of value to a performing organization. Reliance on the valuation of a few individuals may not grant sufficient room to raise capital for the organization as it would if the value concept is extended to the entire market to attach its contribution in the valuation process. Analysts hold the opinion that the risk is worth taking if the perception held by the market about the value of the company exceeds those that the company deems appropriate without such consideration. Taking such risks is however subject to the magnitude of stability that the company has in overcoming possible downgrading by the masses. On the other hand, analysts also provide a scathing criticism of the ambiguous attachment of value in the stocks by the company. It is apparently out of control for the management to rank a single department higher than the entire company’s worth. The attachment of value to assets must follow basic business principles where common adage reflects that “identical assets have identical prices” (Lamont and Thaler 227). The authors hold the opinion that the operations of a company against legal provisions in terms of valuation of an asset, the operations of financial markets must follow the one price principle. In terms of the one price law, the asset in question must trade in the market at the exact value and not any other price. With regard to the investors’ opinion on the stock performance on IPO, mixed reactions emerge to demonstrate the stretch of perception across critical and proponent attitude as witnessed at the beginning and after some time in the stock market. Initial offer price at $38 was welcomed with both hands by the investors as illustrated by the figures of subscriptions and the subsequent valuation when the stock started trading (Ernst and Young 11). From the IPO valuation to a massive opening valuation at $165, investors demonstrated their acceptance of the company’s valuation of the shares and the confidence and esteem with which potential investors would have to hold Palm. This performance was however subject to several market evaluation and long-term investor perception, which started to emerge after only eleven moths of performance at NASDAQ. Indications of stabilizing at a lower figure than the IPO quotation started to emerge and two years opinion of the investors stood at $0.60. This performance trend within such a short presence in the market and the huge fluctuations demonstrate the apparent bias that the initial investors had towards the valuation of the stock, and the subsequent loss of confidence by other investors leading to such a drastic fall in its valuation at the NASDAQ. The highest level of bias perhaps rests in the management’s approach in the proceedings of the IPO as the initial valuation of the entire organization indicate that the valuation of the stock must have been lower that the quoted price. In view of the consequences of the initial valuation, the management must bear the risks of such a valuation bias and effectively compel them to provide the appropriate information to the corporate word. Pricing of Palm and 3Com on First Day of Trading Considering the origin of the IPO was the disposal of the 6 per cent of the Palm department, valuation of the sold fragment with respect to the entire business valuation must have followed basic principles of quantification. Apparently, 3Com share was selling at $104.13 before the Palm IPO, whose share quotation at that time stood at $95.06. From the precise ratio analysis of 1.525, 3Com shares should have hit $145 mark at close of IPO, but quotations stood at $81.81, which was undervalued by $63 within hours. In such a sudden market valuation, 3Com without Palm department stood at $22 billion, representing a huge mispricing gap that was widely discussed on different platforms (Lamont and Thaler 230). With comparison to the 3Com shares, Palm’s valuation estimates from three perspectives indicate that the most appropriate price that should have been applicable at the IPO was less than what was given. Embedded value as a reflection of the 3Com valuation must have given a lower figure, bearing in mind that the Palm functionality to the entire business could not exceed the entire organization’s worth. Additionally, options prices and actual pricing variables would have given contradictory figures that should have compelled the pricing strategy to downgrade initial quotations. As confirmations from a few members of the management team illustrate, the IPO was not appropriately conducted and issues of valuation contributed to the plummeting share prices after a short trading. Legal questions surround the ethical conduct of the parties involved, with the contribution of notoriously questionable participants such as Goldman Sachs and Morgan Stanley adding on to the credibility of the valuation. Sakawa’s Opinion In terms of the assessment that Paul Sagawa made of Palm’s IPO and stock valuation, perhaps it made the right impression to customers of the products produced by the company but failed to capture the substance of the IPO. Whereas the performance of the product in which a company under IPO consideration offers may make a direct impact in generation of the company’s success in the market, shares pricing is a different matter in a different market. In view of the motivation behind Paul Sakawa’s remarks, the influence may have gone directly to customers of the gadgets as opposed to the shares which have a different demand and supply analysis defined by a financial markets pricing system. Sakawa’s technical knowledge of telecommunications would have a different impact on the valuation of the shares. However, his indication that the company was making the right moves in the acquisition of market share and its sustainability, investors would be motivated to enquire about its stocks as a highly regarded company in the telecommunications market. The potential he attributed its shares to possess from the quality of its products would nonetheless make some significant contribution in justifying the valuation of the stock at the offer price. This is however contradicted by the revelation of the technology industry players that they thought that their stocks were generally overpriced (Lamont and Thaler 227). Works Cited Ernst & Young. “Top 10 IPO Readiness Challenges: A Measure that Matter Global Study.” Web. n.d. (http://www.unternehmensfinanzierung.at/static/cms/sites/unfin/media/de/pdf/studien-statistiken/ernst-young-top-10-ipo.pdf) Lamont, A. Owen., & Thaler, H. Richard.”Can the Market Add and Subtract? Mispricing in Tech Stock Carve-Outs.” Journal of Political Economy, 111.2(2003):227-268 PWC. “Executing a Successful IPO.” Web. 2010. (http://www.pwc.com/us/en/transaction-services/publications/assets/executing-successful-ipo.pdf) Read More