May 6, 2002 4:45 PM PDT
Overstock auctioning shares in IPO
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Overstock.com files for IPOMarch 5, 2002
WR Hambrecht, Overstock's underwriter, began auctioning off shares for a recommended price of between $12 and $16--although buyers can bid any price they choose--in a process known as an open IPO, according to a WR Hambrecht spokeswoman.
Salt Lake City-based Overstock is offering 3 million shares in an effort to raise between $36 million and $48 million.
Overstock is one of the Web companies often referred to as "Internet vultures." During the dot-com die-off, the company scrambled to the headquarters of distressed Web companies in the hopes of picking up excess inventory for cents on the dollar. Overstock would then offer the goods, as well as merchandise obtained in traditional liquidation sales, over the Web.
In March, Overstock said in documents filed with the U.S. Securities and Exchange Commission that it generated $40 million in revenue last year, up 57 percent from the previous year, and narrowed its net loss to $13.8 million. It had a net loss of $21.3 million the year earlier.
The company, which had $3.7 million in cash at the end of last year, has a bank debt of $3 million due June 1 of this year.
The rarely used open IPO process is designed to level the playing field between behemoth institutional investors and the relatively wee individual investors. Big and small investors are allowed to bid for access to the shares before they are publicly traded in an open IPO. They submit bids with the price they are willing to pay and the number of shares they want to buy.
An individual willing to pay the same price as a large institutional investor can acquire shares--provided both bid at or above the offering price. WR Hambrecht then tallies up the highest bid price that will result in the sale of all the shares being offered.
Even though this "Dutch auction" approach to selling shares is seldom used, proponents of the open IPO process say the system is much more fair than the more common method of stock allocating stock. Most companies divvy up stock to institutional investors before allowing the general public to get a crack at them.