“The most embarrassing IPO fiasco of the decade,” - that is how the foreign press describes the story of drug development company VBL Therapeutics, which retracted its IPO between the pricing process and the closing, after its share had already been traded for four days. Investment banks Wells Fargo and Deutsche Bank led the IPO.
Nasdaq already pressed the rewind button at the beginning of last week, canceling all the transactions carried out involving the share. It was not necessary to give the investors in the IPO a refund, or the return the shares to the company, because shares are not actually issued until the closing process.
Ostensibly, trading in any share for which closing has not been done is conditional, and any party trading in it takes into account that the IPO might not be closed, but this almost never happens.
Capital market veterans can recall only a few such cases, all more than a decade ago. For example, a case in which a company CEO resigned between the pricing and the closing, leading to the cancellation of the IPO, because a significant item in the prospectus was no longer true.
The VBL IPO was canceled because one investor, US venture capital fund Keffi Group, headed by founder Jide Zeitlin, did not deliver its money at the closing. The official statement said that the fund had liquidity problems caused by the withdrawal of money deposited with it between the pricing and the closing.
Keffi is also a shareholder in VBL, and owned a 24% stake before the IPO. The VBL prospectus said that “parties connected to the company” has expressed their intention of taking part in the offering. The prospectus states, “This undertaking is not a legal contract,” but as far as is known, the fund ordered shares in the pricing, and that does create a legal obligation.
Market sources claims that in addition to its liquidity problems, Keffi had quite a good motive for not transferring the IPO money. It undertook to invest $30 million in the offering, after having already invested $35 million in the company, and the share lost 8% of its value between the pricing and the closing, which would have meant that Keffi would lose money on the price at which it originally invested in the company.
On paper, Zeitlin looks like the perfect investor. He was a partner at Goldman Sachs, studied at the right universities, including an MBA at Harvard, and is on the board of directors of a large number of leading companies. His reputation will suffer greatly by what was done, but it turns out that this is not the first time. In the past, he was slated for an appointment as a UN representative but canceled his appointment following a report in “The Washington Post” claiming that he was entangled in a legal imbroglio after impersonating a rival company in an e-mail. Zeitlin said it was a joke, and the person to whom the message was sent should have understood that.
No response from Zeitlin, the man most identified with Keffi, was available today, but he told “The Wall Street Journal,” “We went through hoops and did our best to support VBL as much as possible.”
Who is responsible for the failure?
Had Keffi been an investor through the underwriters, they would have had to make up for its disappearance. In this case, however, it can be asserted that a significant item in the prospectus - the statement that Keffi would bring $30 million - was not fulfilled, and the underwriting obligation was therefore null and void. That is in fact what the underwriters stated in their notification to the stock exchange.
Published by Globes [online], Israel business news - www.globes-online.com - on August 17, 2014
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