Twitter's goal in IPO: to avoid becoming Facebook

Reuters

By Olivia Oran

Nov 8 (Reuters) - As Twitter Inc's chief financialofficer planned the company's initial public offering this year,he had one overriding goal: to avoid becoming the next FacebookInc.

Twitter CFO Mike Gupta grilled banks about how to sidestepthe problems that beset Facebook's IPO from start to finish,asking detailed questions about everything from how to pick anexchange to how to communicate with analysts.

"They were really information and data hogs," said oneperson who worked on the process. "They wanted a lot ofdifferent perspectives and to make sure that they did thisright."

In the end, Twitter made different choices from its rivalsocial networking site. Facebook selected Morgan Stanley as its lead underwriter, while Twitter picked Goldman Sachs. Facebook listed on Nasdaq, where trading glitches marredthe initial hours of trading, while Twitter listed on the NewYork Stock Exchange.

Twitter made sure its shares were sold for a low enoughprice to attract strong interest and keep shares high in theirearly days of trading, after Facebook's shares dropped in thedays after its IPO.

Bankers said Gupta and Twitter's director of investorrelations Nils Erdmann also looked closely at what worked - andwhat did not - for other Internet companies that went public,including Pandora Media Inc, Zynga Inc andLinkedIn Corp.

A key player in the IPO was Goldman's lead Twitter banker,Anthony Noto. The New York-based Noto was a former top rankedequity research analyst who left Goldman in 2008 to serve as anexecutive for the National Football League. He rejoined the firmjust two years later to serve as the co-head of globaltechnology, media and telecom investment banking.

Noto has built the team into the number one U.S. underwriterfor tech IPOs so far this year, over Morgan Stanley and rivalbanker Michael Grimes who led the Facebook IPO, as well as otherhigh profile deals including Google and LinkedIn.

Goldman has taken over 16 technology companies public sinceJanuary, including software darling Tableau Software Inc. For the same period last year Goldman was fifth,according to Thomson Reuters data.

Those that have worked with Noto praise his low-key,no-nonsense style.

"Every banker talks about wanting to build a relationshipbut after you do a deal with them, you are dropped likeyesterday's newspaper," said Ed DiMaria, the chief financialofficer of Bankrate Inc who first worked with Noto whenhe helped take his company public in June 2011. "With Anthony,it's not about getting paid or the next deal - it's about therelationship and how he can be helpful to the company."

Twitter could not be reached for immediate comment. GoldmanSachs and Morgan Stanley declined to comment.

TAKING RIVALS BY SURPRISE

Goldman quietly began working with Twitter in May, helpingthe company to draft its S-1 registration statement and submitit confidentially to regulators. News in late August that thecompany's IPO was already underway caught most other investmentbanks by surprise.

There was no formal pitch process to fill out the rest ofthe syndicate, bankers said, as other banks - Morgan Stanley,JPMorgan, Bank of America and Deutsche Bank - were approached by the company and told that theyneeded a credit commitment if they wanted to be part of thedeal.

The company delved into areas many companies rarelyconsider, including how its shares should be allocated among theunderwriters, and whether overpricing or underpricing a dealwould hurt its brand.

Noto and his team were loath to take any risks that wouldjeopardize the deal such as putting too many shares in the handsof retail investors that would flip the stock on the first dayof trading.

In the end, Noto got his wish as half of the 70 millionshares that Twitter sold during the IPO ended up in the hands oflarge long-term holders.

Twitter decided to price its IPO at $26, a relativelyconservative figure as underwriters were weighing pricing thedeal at as high as $28, according to investors. But underwritersdecided that it made sense to price the deal at a lower pointand leave room for a larger first day pop rather than follow inFacebook's footsteps even if it meant leaving more than $1billion on the table.

Facebook, which priced its deal at $38, saw underwritersbattle to keep its shares from dipping below the IPO price onthe first day of trading. The shares continued to drop to fallas low as $17.55 in the months following the company's publicdebut. It took over a year for the stock to recover.

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