VentureWire droppedÂ their assessment of the Vonage IPOÂ in my inbox this morning.Â They described it as the worst IPO debut in two years.Â Some of the most interesting commentary was at the end of the piece, in these two paragraphs:
Citigroup provided what is known on Wall Street as “support” for the deal, which essentially means an underwriter steps in as a buyer to prevent a stock from falling below its offer price. A spokeswoman for Citibank declined to comment on Vonage’s IPO.
But investment bankers at other firms said underwriters have a limit as to how much they will stabilize a stock, usually by taking a short position for about 15% of the total value of the deal, then buying back shares to cover that short position as it trades. If the stock continues to fall beyond what the underwriter can buy in the open market to cover the short position, the underwriter will step out of the way and let the price fall, they said.
This morning it looks as if Citibank has indeed stepped away, as the shares continue to fall and are now trading at $12.75 — down another $2.10