Twitter’s Underwriters Stand To Reap More Than $200M Following The Company’s IPO Spike

Update: There has been some pushback about this post, and I think a note is in order. My financial accounting source says that the main premise checks out, but that because I only looked at the S-1 document, I could have missed the impact of potentially extant private contracts between the banks in question and the company. This could lead to caveats, price controls, and the like. I got a bit over my shoes, and I apologize for that.

After strong demand, Twitter priced its IPO at $26 per share. Today Twitter went public, first trading at $45.10. The company is having a hell of an IPO day. But there is another group of folks who are giggling: Its underwriters.

Here’s Twitter’s S-1 document explaining how many of its shares its underwriters can purchase: “[The] underwriters have the option to purchase up to an additional 10,500,000 shares from Twitter at the initial public offering price less the underwriting discount.”

So, the underwriting banks get to buy 10.5 million shares of Twitter stock at a discount to its IPO price. Even if they were only allowed to buy the 10.5 million shares at a flat price of $26, they would stand to reap a huge sum. Let’s do some math:

  • At $26 per share, the 10.5 million shares would cost $273,000,000. At current market price of $45.89, those shares are worth $481,845,000. That’s a profit of more than $200 million. And since the underwriting banks get to buy there shares for less than $26 per share, the profit they are walking away with is worth even more.

This, of course, is mild pushback against the argument that Twitter’s bankers will be fired for “miss-pricing” its IPO. Really? They just wrote themselves a nine-figure check, in addition to their normal underwriting fees. Hardly a bad day for Goldman Sachs, Morgan Stanley, and Twitter’s other banks.

You can keep track of Twitter’s gyrating first day’s trading here.

Top Image Credit: Flickr