Morgan Stanley nabbed the biggest US initial public offering of the past five years. Now it gets to field the second-guessing after Uber Technologies Inc. tumbled 18% in its two painful first days of trading.<\/p>\n
Across Wall Street, questions are flying: Why did bankers including Morgan Stanley\u2019s suggest a $120 billion valuation last year that Uber couldn\u2019t deliver? Did the syndicate led by the firm set the IPO\u2019s price too aggressively? And did they steer too much stock to big investors who made hollow pledges to hold it long term?<\/p>\n
\u201cIn retrospect, the underwriters should have done a better job at figuring how strong the true demand was,\u201d said Jay Ritter, a professor at the University of Florida\u2019s Warrington College of Business who specialises in IPOs. \u201cBut underwriters in general have a hard time finding out how much buy-and-hold demand there is, versus flippers.\u201d<\/p>\n
The debate over how well Morgan Stanley and other banks handled the marquee offering is complicated by a lot of bad luck, including the abrupt flareup last week in US-China trade negotiations that drove markets down around the globe, as well as the recent dismal performance of Uber\u2019s main rival, Lyft Inc.<\/p>\n
There\u2019s also a broad, gnawing concern about Silicon Valley\u2019s penchant for delaying public listings until startups achieve full size: Who\u2019s left to buy?<\/p>\n
Many top-tier investors already owned shares of Uber before last week, potentially curbing some appetite for the $8.1 billion of stock sold. Holders included clients of Morgan Stanley\u2019s wealth management division, such as family offices that had opportunities to buy in privately, one person familiar with the matter said.<\/p>\n
Even some within Uber\u2019s leadership began to view the round more as a \u201cfollow-on\u201d investment than a fresh public offering, two people said.<\/p>\n
Still, people with knowledge of the situation have said the order book was at least three times oversubscribed.<\/p>\n
A spokeswoman for Morgan Stanley declined to comment for this story.<\/p>\n
One investor at a multibillion-dollar shop recalled other misgivings heading into the sale.<\/p>\n
He said he grew suspicious days before the pricing because the syndicate of banks kept seeking reassurances that his firm wouldn\u2019t flip the stock.<\/p>\n
Yet, the bankers also kept telegraphing there were ample retail investors hoping to buy in after the debut, which could cause the price to \u201cpop\u201d at least briefly, offering a chance for a quick and easy profit, the investor said. His firm ended up slashing its final order.<\/p>\n
The stock fell more than 7% on Friday and then 11% on Monday.<\/p>\n
Price Stabilisation<\/strong><\/p>\n Morgan Stanley has been trying to steady Uber\u2019s price, according to people briefed on its efforts. As the lead underwriter and stabilisation agent, Morgan Stanley has a right to sell additional shares via a so-called greenshoe option.<\/p>\n Typically, banks can either get those shares from sellers in the IPO, or by snapping them up in the open market, which helps to support the price as it begins trading. It\u2019s unclear to what degree Morgan Stanley has done so.<\/p>\n At least one of Uber\u2019s largest investors, now in the red and speaking under the condition of anonymity, voiced frustration, suggesting the bank should have propped up the price more from the start. Yet that could have left the investment bank with less firepower to support the stock if it were to keep sliding in the days that followed.<\/p>\n Morgan Stanley has built a reputation for wresting megawatt technology IPOs from major rivals including Goldman Sachs Group Inc., which was listed second on Uber\u2019s offering documents.<\/p>\n Some credit the tenacity — and others the showmanship — of Morgan Stanley tech banker Michael Grimes and his equity capital markets counterpart Colin Stewart. Both are veterans of the industry, able to reassure clients, ‘we\u2019ve been here before’.<\/p>\n Uber, perhaps the player whose opinion matters most, hasn\u2019t faulted the bank. In a letter to employees, Chief Executive Officer Dara Khosrowshahi blamed the poor opening on the markets: \u201cObviously our stock did not trade as well as we had hoped post-IPO. Today is another tough day in the market, and I expect the same as it relates to our stock.\u201d<\/p>\n Uber\u2019s $45 stock price in the IPO gave the company a $75.5 billion valuation. The shares closed at $37.10 on Monday. A $120 billion market valuation would help Khosrowshahi and other executives unlock equity awards.<\/p>\n It\u2019s possible that the early trading travails won\u2019t last. Morgan Stanley has handled some of the most famous and infamous tech IPOs of all time — Facebook Inc., for example — that initially fell before fully emerging as once-in-a-generation companies.<\/p>\n Uber looks \u201ckind of like what happened after Facebook,\u201d said David Erickson, a finance professor at the University of Pennsylvania\u2019s Wharton School. \u201cThe balloon got deflated on the first day.\u201d<\/p>\n
\n