Vol 5 p332 Private Placements are issues not involving any public offering and not required to register with SEC. Yet the issuer does have to furnish the info. deemed as “material” by SEC at the private placement memo while the “non-material” need not be included. What do “material” and “non-material” here refer to? Why companies go to private placements (lower issuing cost)? Does it mean the general public have no way to find these investment opportunities? What’s great about it?
Material information is any information that an informed investor would use in its investment consideration process. For example, if a company is issuing a private placement and being sued for patent infringement, it is considered ‘material’ information that they have to tell their prospective investors. Companies usually go the private placement route as like to tell as few investors as possible about their financial condition and there is less legal and regulatory hassle. If you issule public securities than ofcourse you are open to scrutiny of analysts, media and the SEC and various other stakeholders. With a private placement, you can deal with a few investors and not deal with any regulatory bodies. Also, pricing on private placements tend to be a bit more expensive than comparable public securities.
^more expensive as far as the discount with common stock and coupon with a debt placement, but overall they are cheaper b/c they can be completed in a much shorter period than public offerings (i.e. - without the drawn out process). Moreover, a public offering is “televised” to the market, whereas a PIPE is not. So you could argue that the higher pricing you pay with a private placement is offset by the ease in which you can get it done, and hence a stock price that doesnt get killed in anticipation of dillution. I did these for a period in my career…
drs - arent PIPES and private placements largely different things? I thought that a PIPE was private company or financial sponsor acquires a stake in a listed entity vs a private placement where a private or public company sells a block of shares to a limited number of institutions? I also seem to remember that there are some lock-in restrictions on the acquirors when carrying out PPs (although the details are fuzzy) Admittedly there is crossover but by no means do PIPES = private placments (and vice versa). This could be a US/UK language point and so interested to hear your views. Cheers, JT
drs Wrote: … >So you could argue > that the higher pricing you pay with a private > placement is offset by the ease in which you can > get it done, and hence a stock price that doesnt > get killed in anticipation of dillution. Do you mean for a given public traded stock, there’s also a possible private placement going under - which general investors are not aware of it? If so, why E*Trade did not go private placements with Citadel Group last Nov.? Well, this maybe a silly question.
[In the US, I have no idea about elsewhere] A publicly traded stock sold to someone privately is a PIPE. A private placement is selling unregistered equity to someone. A PIPE can be a private placement but there is then usually some agreement that the company will facilitate registering the PIPE. There can absolutely be equity issued that current investors are not aware of - did anybody know about the dilutive impact of the Citadel/E-trade deal before it happened? (I don’t think so).
If PIPE (–>registered issues) can be a private placement (–>unregistered issues), should it become unregistered then? Had Citadel/E-trade deal went private placement, the etfc price wouldn’t be crushed. The ultimate goal is to raise cash, right? If it’s a private deal, why made it a public news? I thought it’s supposed to be secret.
It’s a publicly traded company! You have to disclose material things like you just diluted everyone’s stock by 25% or whatever it was.
PIPE’s are unregistered stock… Sometimes companies do registered direct offerings, but those are not considered PIPE’s…
JoeyDVivre Wrote: ------------------------------------------------------- > It’s a publicly traded company! You have to > disclose material things like you just diluted > everyone’s stock by 25% or whatever it was. Joey, would it be contradictive of what you mentioned previously? > There can absolutely be equity issued that current > investors are not aware of… If there’s any undertable transaction going on for a publicly traded company, it just can’t be material, right? I assume.