NEW YORK (The Street) -- Too many in the media are consumed with doling out wild acclaim for Friday's Facebook FB initial public offering. Said Marketwatch, in a representative bit of headline nonsense:
"Facebook IPO: Perfect, in a strict sense: Commentary: We should have expected perfection." Got that? Pricing was precision. This perfection was achieved, or the media told us, because Facebook and its underwriters led by Morgan Stanley MS , did not leave any money on the table. They priced the stock at $38, which is about where (magic of the marketplace!) it closed its first day of trading. In other words, they priced the stock exactly where it stayed, which means they did not lose profits to traders.
But were any imperfect means used to keep the stock from collapsing below 38? After all, we know the IPO worked well from the point of view of Facebook insiders. But that's a rarified circle. How about Friday's traders?
On the surface there were no problems because the stock, by an apparently divine hand, literally did not slip below $38. In fact, every time it touched 38, orders poured in. Hmmmmm.....
But let's talk about that, because it might point to imperfection.
There is no certainty in the world of IPOs, but some (like Reuters) pointed to what probably happened: "The underwriter, Morgan Stanley stepped in to support Facebook's stock when it fell toward its $38 IPO price shortly after it opened, a source familiar with the matter told Reuters. The shares spent much of the last hour of Friday trading near that price, with onlookers watching to see if it would post a $37.99 price -- which it did not."
Reuters also sketched out how it probably happened: "Lead underwriters in a stock essentially 'short' the stock through what is known as an 'over-allotment' of shares -- they sell shares to the market that they do not own. If the stock has trouble, which Facebook did, the underwriter supports it by then buying more stock at the IPO price.
And, finally, Reuters gazed at what will probably happen from here: "The bank will not support the stock indefinitely."
Perfect? For Facebook insiders, certainly. They left no money on the table. For all other traders, hardly. They'll be left holding the bag.
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