Replies to post #228016 on Biotech Values

[iwfal]

That’s correct if by “offer price” you mean $17.00, but the price to the underwriters is 15.98. That’s what they can buy the additional shares at, and RVNC traded well above that (but under 17) for most of December.

That’s different from my understanding (altho v interested anything you think I get wrong here) - i.e. the greenshoe over-allotment options shares are meant to defend the public offer price. Example:

Company wants to sell 10m shares at 17. Broker sells 11.5m and buys immediately 10m shares at 15.98. The remaining 1.5m shares are shares for which the broker is now short.

1) If the price falls below 17 his job is to cover the 1.5m short position to keep the price at near 17. The broker makes a profit on this closed short position.

2) If the price goes up above 17 the broker can cover his short by exercising the shares in the greenshoe option. So he sells them at 17, buys back at 15.98.

Note: assuming the share price drops below 17, but is kept above 15.98, the profit the broker gets is smaller than had the price gone above 17. Which is as it should be since the broker didn’t pick the correct offer price. But if the broker only has to defend 15.98, then he’d be a fool to do otherwise. And I’d expect a lot more shady practices by brokers helping an offering.