A Krafty Offering

A consistent problem during the peak of the Internet IPO boom was a disconnect between supply and demand: New offerings enjoyed massive (though short-lived) increases partly because there were lots more interested share buyers than shares. The result was that companies seemed to be raising less money than they could have by pricing their shares higher, post-IPO investors were wildly overpaying, and the difference was pocketed by shadowy inner-circle types lucky to get shares at the offering price that they could unload at a drastic premium.

The big IPO story today is, of course, the debut of Kraft, which has been spun off from Philip Morris (although the latter maintains almost total control of voting shares in Kraft). Riding a good deal of hype, Kraft managed an offering price of $31 a share, more generous than even the best estimates a week ago. Interestingly this seems to have occasioned some grousing, the consensus being that there’s little short-term upside for the stock at that price.

The root of this seems like an odd complaint—that Kraft’s IPO happened at a price that pretty well matches supply and demand. This morning the new Kraft shares were up mildly, about 50 cents, meaning that the post-IPO crowd can “get in” at very close to the offering price. So what’s the problem?

Maybe nothing. But there is the possibility that what’s happened with Kraft is that the hype premium has simply moved to an earlier point in the process: Maybe, in effect, there was a kind of pre-IPO pop. After all, Kraft is a very mature company that doesn’t offer any prospect for the wild growth promised (or claimed) by the soaring Net debuts of yore. It’s conceivable that the markets may decide in the months (or hours) ahead that $31 is a bit rich, in which case the opportunity to get in at $31 doesn’t sound so great after all. The positive sides of even this scenario are that at least the company raised as much money as it could, and that any disgruntled buyers of shares in the open market will find that they’re in basically the same boat as that shadowy inner-circle crowd. But this, needless to say, would be cold comfort.