Slashdot Mirror
Vonage Vows to Pursue Customers Who Renege on IPO
kamikaze-Tech writes "As its shares continued to sink following its initial public offering last
week, Vonage Holdings Corp. (VG) said it plans to hold Customers who promised to
buy IPO shares to their pledges. In a WSJ article posted in the Vonage Forums; a
Vonage spokeswoman said Wednesday the company will pursue payment from
customers who renege on
their agreements to pay for the botched IPO shares. Shares of Vonage,
which offers Internet-based phone service, immediately plunged from the $17 IPO
price, and they closed Wednesday at $12.02 in 4 p.m. "If they don't pay,
we will reserve our right to pursue payment," said Brooke Schulz. She added that
speculation that the company intends to buy shares back from disappointed
investors are false. "They are taking a risk if they choose not to pay," she
said."
Well they may already have. IPO money goes to the company issuing its shares. Once they are on the Nasdaq or NYSE they are on the secondary market; i.e. the shares you buy or sell are traded with the company itself but with some other chap who has the exact opposite view to yours.
Hence those who had their Vonage stock converted in ordinary public shares already sold at $17, if they got ahold of these at lower price (or free as stock options) than they probably already have the Ferrari dealer on their friends list.
Artificial intelligence is no match for natural stupidity
I don't think it was the sec that had the problem. It was the investment bankers that couldn't make the billion dollars with their investment banker cronies in the usual fasion. The sec is there to protect us not them -- though it usually doesn't really bother...
Imagine if you weren't allowed to use roads because a bus company complained about your driving 3 times. --skunkpussy
Sorry mate but that was a joke by Matt Groening. He only said it in passing and it went around the world before he had a chance to say "just kidding".
I submitted a story on this yesterday morning. Vonage went on CNBC Wednesday morning and announced that it "is going to let some of its customers off the hook by buying their unwanted shares." The statement said that "While all avenues are available to us we cannot imagine alienating our customers in that way. If certain . . . customers don't pay we expect to repurchase shares from the underwriters if necessary."
People immediately started pointing out that it is illegal for a compnay to treat different shareholders in the same class differently -- Vonage was only offering to "make whole" (Wall Street speak for "absorb the losses of") investors that hadn't yet paid for their shares; people that had paid were SOL.
The whole IPO has basically been a mess, with snafus both in selling shares to their customers and delivering them. Some Vonage customers that they were led to believe that they "weren't allocated shares in the IPO when in fact they had received the shares. Others investors who purchased shares have complained that technical glitches on a Web site set up for Vonage customers prevented them from executing sales in a timely fashion."
I've had good experiences with the Vonage product as a customer, but there are many, many stories of how poorly Vonage customer service treats their customers. They're very slow in sorting out problems -- it took them 3 months to transfer my land-line phone number, and initially the temporary number they gave me was in a different area code than my city, putting me in a long-distance calling zone relative to my friends. It took hours before they fixed it (they kept claiming it wasn't "technically possible" to give me a new number). Analysts are worried that future propects for the company might not look so good, and that screwing over their own customers in the IPO might be the last straw.
I was part of that IPO as a potential investor. The process was very clear.
*You "read" the prospectus (think EULA "check this box" kind of thing) that warned you extensively about the risk involved. Those risks were very clearly stated.
*You had to read a page on the risks involved, with all of them ending in "and you could lose all the money you invest"
*You created a limited purpose account with a brokerage.
*You were told to read the prospectus again.
*You made a conditional bid in 100 share increments, with the expectation that the price would be between $16-18. You were told that you could drop out at any time prior to the price being set, and that your bid, if accepted, would be binding.
*You were told that the price was about to be set.
*You were told to read the prospectus again.
*The price was set at $17.00
*You were told "The posting of this information and the final terms of the intial public offering constitutes the underwriters' acceptance of your conditional offer to purchase shares of Vonage common stock. Accordingly, you are now obligated to purchase the number of shares you have been allocated, if any."
Having gone through it, I have no doubt that they are on firm legal ground (IANAL). You had to accept (again EULA type) every single step of the way, and every time you logged into the website.
Thank God my bid wasn't accepted!
-ps
If I were a director of Vonage and my boss the shareholders could possibly come after me in some manner for negligence if for example the company now sinks. So not only do I want to avoid exposing myself to being unable to be a director (if it were the UK) for a while, prison or huge payouts to the actual shareholders or sue people who were in breach of contract what would I do.
Gosh that is such a tough quesiton.
Any one else noticed how many slashdots turn into debates on the law?
Is anyone else bothered by all this negative press for a company, who for most part has consistently provided a good service? I hope all this bad IPO talk doesn't reflect poorly on the VOIP service itself, which is still pretty darn good and reliable (not to mention a great value). I guess they say there is no such thing as bad publicity.
Yep, they made you go through multi stage process where they warned you multiple times that you could lose some or all of your money. They also made you analyze your threshold of risk and after all that and a few more dire threats you were given the agreement to puchase an unknown number of shares. It was unknown since the number of share available was dependent on the number of people participating.
You're correct though, you weren't agreeing to purchase the shares before the IPO (since the price wasn't known), you were agreeing to purchase the shares at the opening IPO price.
Since the IPO was pretty bad, you've now got some upset people.
You can not collect the money upfront. Selling new issues of a stock [IPO] is a very strictly regulated process, both in terms of processes and timing. And I am sorry for the people who did not get to trade their stocks the first day. That is sad. However, having worked in the back office of a securities industry, I can so see how this could happen. Getting the shares from the underwriter to an individual account must translate across at least 3 different technology platforms. None of them terribly well integrated or automated. As for the little people who got stung - I have little sympathy for them. IPOs are not priced so initial investors have a sure thing. That is against the law. The company, with the help of the underwriters, must price them fairly. [Though they tend to be conservative and hence low]. The little guys are discouraged from doing IPOs because they complex and can become very messy very quickly. We are talking about a brand new company with no track record trying to guess how much it is worth. If you invest in the stock market, you know that you could lose it all. Doubly true for IPOs.
Ummm....no.
There's something called supply and demand. At $17, the supply of the stock was greater than the demand. Hence the price fell. By pushing these sales, Vonage is foisting more supply on a market with already week demand.
The people who buy stock through this program don't sound like the buy-and-hold type. Yes, some hold the stock in hopes it might some day return to the IPO price, but many will dump it and cut their losses. Which will again raise supply and drop the price.
If the plan is to help the stock price go up, rather than increase supply, Vonage should buy back stock. Such a move would decrease supply of shares in the market and send a message of confidence.
Right now it sounds like Vonage doesn't think shares will top the IPO price for a long time. If I sell you something for $17, and you never show up to complete the deal, and it turns out to be worth $12, I'm out $5. If I make the same sale, and you back out, and something turns out to be worth more then $17, then I'm not going to make much of a fuss.
Bottom line, at this point pushing sales at the IPO price is good for one group--VC who are using the IPO to cash out and get out of the Vonage business. They want max money now and don't care what happens tomorrow. If you have any continuing relationship with Vonage, then it is a bad idea.
If the insiders are corrupt and/or simply don't care about the business they've likely invested significant amounts of time and money into, then, yes, you may be right.
But the point of an IPO is to raise capital that can be used to grow a company through a mechanism that allows those investors to recieve a return based on future growth and/or interest in the company. (assuming said growth/interest happens)
As all investments carry a degree of risk, the situation of Vonage's shareholders is by no means uncommon, unusual, or even wrong.
Furthermore - just because the stock market does not currently seem to believe that an investment in Vonage has a high likelihood of turning a profit does not mean it won't happen. If Vonage uses this new capital wisely, and is capable of competing profitably in this industry, the investment may still pay off, perhaps very well, even.
Blah. I just fed a troll. Eat hearty.
I'm done with sigs. Sigs are lame.