Taking BBE Public (5)

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At the special meeting of the shareholders of our common and preferred stock, Mason, our IPO counsel, Matt of USA Investment Company (USA) and Meredith from Stock Traders, Inc. (STI) each made presentations about going public.

Mason explained the regulatory steps that we needed to take, starting with the filing of the registration statement with the SEC.  He pointed out that BBE would also have to file a copy of the registration statement with our state's Investment Control Board to comply with our state securities law.  State statutes and regulations on securities are commonly referred to as Blue Sky Laws.  Matt and Meredith discussed the roles to be played by their respective companies as the underwriting syndicate for the IPO.  They told the group that the shares would, in all likelihood, be offered on the NASDAQ.  Alice, our President, then went through the corporate changes that needed to be made to our Articles of Incorporation and Bylaws. She explained why BBE's Board must include outside directors to meet SEC and exchange rules on corporate governance.  Mary Jo, our CFO, proposed the names of two large accounting firms to replace our local accountants.   She explained that the number of authorized shares of BBE would have to be increased significantly.  To meet the requirements for trading on the NASDAQ, the IPO would have to be for a minimum of 1,100,000 shares.  Meredith told the shareholders that the first day of trading BBE shares was probably a year away.  All of these presentations went quickly with few questions from the audience.

When the topic of the IPO price for the shares was introduced, hands flew up across the room.  Obviously, the question of what their shares would sell for was foremost in the shareholders' minds.  Their years of patiently holding BBE's stock were culminating in the prospect of cashing in at a large profit.  Whispered talk of becoming millionaires like the early owners of Berkshire Hathaway stock in Omaha, Nebraska could be heard throughout the room. 

Matt and Meredith took the podium together to talk about valuing BBE.  Setting the offering price for the new shares on the NASDAQ is a combination of accounting and art.  Matt said that BBE's financial statements, when analyzed using various common investment metrics, showed that a share of BBE's new common stock should be valued in the market in a range from $35 to $45 per share.  He cautioned that this, however, is not the only factor.  Meredith explained that the art of pricing the shares comes also from the investment companies' years of experience and feel for the state of the market at the time of the IPO.  If the market is sluggish with low daily trading volumes and investors who are more or less indifferent to stocks, the IPO would be difficult.  The IPO price would have to be set well below the accounting value of the shares in order to attract buyers.  A bull market, with steadily increasing stock prices, high daily trading volume and strong investor interest in stocks, would bode well for a successful IPO.  If the market is a bear market with rapidly declining prices in large volume and overall market fear, USA and STI might actually advise the company to postpone the IPO until a more favorable market returns.  There is no way to tell what the market will be when BBE registers for its IPO next year.  Matt then told the group that only the company would sell stock in the IPO.  Shareholders would not participate.  If existing shareholders were to dump their shares on the market in the early days of trading, the price of BBE stock would undoubtedly fall.  To avoid this, the original shareholders must agree not to sell any shares for awhile after the IPO.  This is called the lock up period.  This drained most of the excitement out of the room, but the vote was unanimous to proceed as outlined.

We will continue following the IPO for BBE in the next blog.

Comments are always welcome.