Guys, I used to do this for a living. It was a tiny part of what I did and I was the corporate facing banker not the equity guy.
But here is how it works.
First, SEC allows the banking syndicate to support price. One of few exceptions out there.
Second, let's say the offering is 10 miliion shares with a shoe of 1.5 million. Syndicate will distribute all 11.5 million.
Third, if price goes up, they do nothing and shoe is exercised.
Fourth, if price goes down, they buy in all or part of the shoe. This leads to partial exercise or no exercise. But as long as share price stays above some price near offering level, either gross or net of fees, shoe probably exercised.
The best is when price comes in and breaks support, they buy in the shoe at a profit and then stock bounces and they flip it back out higher.
Jon
