Thursday, April 21, 2011

ZipCar IPO

By Tiffany Chu-Chuuuu

It was nice to apply what we learned about initial public offerings to a company we read a case on – ZipCar. The article briefly introduces ZipCar’s business model, its board of directors (AOL co-founder Steve Case and former eBay CEO Meg Whitman), its investment groups (ie: Norwegian investment firm Smedvig Capital AS), and its individual investors that are selling the shares. Planning to trade on theb Nasdaq, Zipcar is aiming for a IPO value of “about $125 million at the midpoint of its expected price range of $14-$16 per share. Of that, the company expects proceeds of about $89 million, $46 million of which it plans to use to pay down debt.” 1 The offering is expected to price Wednesday night, with the stock to start trading Thursday, April 14, 2011. Overall, the article expects ZipCar Inc to “get a warm reception from Wall Street for its planned initial public offering”.

While I was waiting for Zipcar to premiere on the Nasdaq, I looked up the only investment group Christina Rexrode, AP Business writer, mentioned in the article, Smedvig Capital AS.  Smedvig has 30 business in their portfolio with one company standing out – Streetcar, Ltd. Christina had mentioned Zipcar moving overseas last year (2010) by buying a UK rival Streetcar Ltd. So, I thought it was interesting how Zipcar partnered up with the same investment group that represented the company that Zipcar had acquired. Opening at $18 per share on April 14, 2011, “Zipcar closed at $28 per share, climbing up 60% in a day.” 2 Zipcar definitely performed better than the usual 10%-15% increase we learned in class. (Most definitely fared better than Knoll Furniture!) As Henry Blodget mentioned in his article in “Business Insider”, “Zipcar’s underwriters, Goldman Sachs and JP Morgan, just screwed the company and its shareholders to the tune of an astounding $50 million”. 2 In addition, an IPO ZipCar thought that charged a “7% IPO fee” on the $180 million the company raised (~13 million) in fact cost the company about $63 million”.

Even though it may seem that ZipCar got the bad end of the stick, the company’s shares performed exceptionally well for a company that has “not earned a profit in its 11-year history; that is has nearly $100 million in debt; that it posted losses of more than $14 million last year; and it expects to lose money again in 2011.” 3 ZipCar’s prospectus also warned, “We do not know if our business operations will become profitable or if we will continue to incur net losses in 2012 and beyond”. 3 It seems that the “textbook reason”, as Dr. Wadhwani puts it, why ZipCar went public is to raise capital to pay off its debts. As of April 21, 2011, ZipCar’s (ZIP) stock value is at $29.15 with 596,070 in volume and a 52-week high of 31.50 and low of 25.90. 

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