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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."
I hope the bigwigs at Vonage held off on those Ferraris they were planning to buy... :D
Let's piss off investors and potential shareholders. Better yet, while we're at it, can we get some bad press and announce to the rest of the world that everyone wants to back away from our stock?
People love investing a pariah stock that reeks of desperation.
http://blindscribblings.com - Tasty pop-culture in conceptual fashion.
I have read TFA, but I still dont understand.
Does this mean that people have promised to buy shares at an agreed price, but because the price has already dropped they will not actually buy those shares?
If so, how did they 'promise', if they have done so in writing, then surely Vonage can demand they do buy those shares at that price?
Or is this a case of a company mucking up a floatation, realising that it is now massively in debt to external creditors and is trying to reclaim that money by threatening people?
Can someone please clear this up for me?
If this were really happening, what would you think?
Stuff that's Boring.
This is actually quite funny. I thought it was insane that the MPAA and RIAA were so willing to sue their own customers if they didn't do everything legitimately but this is new: Sue your owners. Now let's get Metallica involved and we should see the comedy skits and cartoons roll across our web pages - it'll be even better than the Napster thing.
Can't wait till a company gets so desperate it sues itself. (I bet it's already happened and I get lots of links).
These posts express my own personal views, not those of my employer
I hope they don't come after me. I went through their signup, and stopped when I saw the price and the mininum number of shares to buy. I was willing to throw a few bucks into it, but not anywhere near what they were asking for. Stocks are a gamble, and I have my limits. This time, it looks like I made the right choice.
Serious? Seriousness is well above my pay grade.
Aren't stock prices meant to go up after an IPO for at least a few days so the investment brokers can offload the shares at a profit before the stock drops? This seems to have been really poorly organised.
As to the practicalities, if someones signed a contract saying they'll buy so many shares at a certain price, you can't blame the other party for holding them to it, even if they do look like idiots doing so.
Considering Phlebas, whoever the hell he is.
So take Joe Customer who signed up for 200 shares and was allocated 100.
Purchase price: 1,700.00
Current Value: 1,200.00
Loss Customer: 500.00
Vonage Phone Service Bill: $ 324.00 (pre IPO)
Vonage Phone Service Bill: $ 0.00 (post IPO)
Loss to Vonage: $ 324.00
5 years loss to Vonage: $1,620.00
Joe Average Customer becomes Joe Pissed off ex-customer.
I don't care, so long as Vonage stops those freakin' annoying commercials. They're like when a three year old gets a hold of phrase they like and won't stop repeating it. I mean, yeesh. I can be three rooms away from the TV and nearly be irritated out of my skin by those things.
"It is our blasphemy which has made us great, and will sustain us, and which the gods secretly admire in us." - Zelazny
I couldn't find any information about the IPO price-setting process in the United States but I am assuming (call it an educated guess) that, at some point prior to the IPO, Vonage must have announced to all participants in the IPO a confirmed price per share: in this case, $ 17 per share. It would then make sense to me that Vonage would be obliged to give participants the option of dropping out, or confirming that they are still interested in purchasing the shares.
Assuming all the above is true, I would think that, at the date of the IPO itself, purchases are contractually obliged to purchase those shares at $ 17 per share and pay up. The article seems to imply that the investors are now balking on their contractual obligation and refusing to pay up given that price per share has fallen in subsequent days.
However, I have not been able to find any evidence to suggest that Vonage has been unfair in its IPO process. Of course, as this story pans out, we may actually hear from some of the individuals involved.
I did, however, find an early SEC filing related to this auction, available here.
This filing doesn't seem to give any information about the proposed initial price, but I thought it was interesting that the company did disclose that theirs was a high risk stock, and listed several risk factors that could negatively impact the value of their stock.
So, if you were a potential investor in Vonage, you'd be happy if they just let people back out of their legal obligations, regardless of any financial damage to the company itself?
You have strange ideas about responsible corporate governance.
Athletic Scholarships to universities make as much sense as academic scholarships to sports teams.
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.
This isn't going to piss off investors or potential shareholders, it's good for them.
What's better for investors, Vonage sitting on unsold shares with a paper value of $12.02 each or Vonage having $17 cash in the bank?
The more shares Vonage sells for $17, the more money it makes, and the more valuable it is as company, which should mean the shares go up. Good for investors, good for potential shareholders.
The only people this is bad for are the gamblers who agreed to pay $17 for something that turned out to be worth $12.02.
A pizza of radius z and thickness a has a volume of pi z z a
The customers who bought stock prior to the opening bell on the first day did so at a guaranteed price. They purchased the stock not from Vonage but from the underwriters who financed the IPO deal and brought the Vonage stock to the open NASDAQ market. These underwriters are owed the money for the stock purchased. Vonage is indemnifying the underwriters and paying for all the Vonage stock that customers are refusing to send their money for. The underwriters are the ones that are out money - not Vonage. They are the ones harmed by customers refusing to pay for the IPO they ordered. Vonage has a huge public relations problem on their hands. Don't expect any other companies to do this in the future.
http://blogs.zdnet.com/ip-telephony/?p=1106
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.
Why are all the posts here so negative about Vonage? Maybe it's a bad PR move, but they are definitely justified.
Everyone that signed up agreed to buy the stock despite incredibly dire warnings on the signup screens that the price may go down. If customers wanted to buy the stock only if it went up, they should have bought options.
Commitment to the shares required various steps which were clearly stated that if you sign up, you are responsible for the shares no matter which way they went (up or down). I think Vonage, or the institutions that performed the IPO should go after those that committed to the shares.
As part of the process they gave an estimate for the float price and cautioned that you should have X funds ready to send. I guess the real question is was there enough information during the signup process to authenticate the person and informing them of the rules of the IPO. I would think so, but then again, IANAL.
I looked into the IPO as I qualified and actually committed to a certain amount of shares. However, after speaking with investor friends, they recommended staying away from the IPO for various reasons. I went back to the site and retracted my offer. So I'm not on the hook for these shares.
Vonage decides to "let the little guy in" by offering shares to customers. But it makes the huge blunder of not actually collecting the money, letting the customers merely agree to buy. These are, for the most part, unsophisticated investors who think that getting in on an IPO means free money, and that they always go up.
Now that the opposite has happened these "investors" not only want to walk away from the deal, they want to cancel their service! Here's what one participant said: " I have had enough of this company, refuse to pay for these shares, and am canceling my Vonage service, not because it is not a good service, just because i have lost all faith and trust in this company. "
Leaving aside any questions of his logic or good faith intentions, Vonage has dug themselves a huge hole and jumped right in. And it's going to get worse before it gets better. The only way these people can try to get out of paying is by canceling the service. So sooner or later Vonage is going to have to consider sucking it up and "forgive" all those promises to buy in order to keep their customers. But if they do that the stock plummets, and here comes a class-action lawsuit from the stockholders.
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.
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.
Vonage is on the hook for that money. I was allocated 800 shares. at around 9:40 with the stock at 17, i logged in to my UBS account. There were no quotes, and trading was entirely disabled. I tried market orders, limit orders. So I called in. After waiting on hold, i got a print at 16.24. The manager explained that the website was down and no vonage ipo customers could enter orders or see quotes on the website, so customer support was backlogged with frantic customers. I received no evidence or confirmation of my print for 24 hours, when the website finally showed the execution. I called in to argue for a price adjustment. The internet services manager told me she had adjusted my print to 16.75 (I have her name and the time of the call). So Vonage will probably slap collection on me, suspend my service, maybe even zing my credit. Here's my message to you Vonage: FUCK YOU. I'm not angry the stock went down. I'm angry that i was enronned into eating a tanking stock, lied to about an adjustment, and then made out to be a whining asshole that doesn't want to eat the loss. I could give two shits about eating a 600 dollar loss (76x800). What I do care about is being mugged, which is what UBS did here. If anybody else had a similar experience, let me know. I would really like to initiate a class action suit.
Ever consider the fact that all the numbers you blocked on your old provider were now unblocked and that's why you got flooded? Sounds like your old number is the problem, not Vonage. IMHO.
This IPO had so many glaring red flags I can't imagine why anyone would jump on it. Principals with fraudulent backgrounds--and that's just the stuff they HAD to disclose--a questionable split and sweatheart options executions just prior to the IPO, a massive debt and burn rate, horrible dire predictions about competitiveness and on and on and on. If they had gotten the full estimated value of the IPO, they would be in the black for less than a month.
This was more an attempted robbery than an IPO.
Sure. Companies can bet against their own stock. It would be extremely bad PR if they did so (with some clear exceptions, see below). They would, most likely, be required to issue some sort of 'news', or factual material, that supported their own 'opinion'. [as expressed by their obvious negative outlook on their own stock]
But with an IPO, and the subject of puts and calls, you have to remember that the rules governing 'bets' for and against a stock can only be made when the last transaction in the stock, itself, has gone 'against' the profitable outlook for the stock as expressed in the put or call contract.
In other words, if I want to bet against Apple, using puts or calls, I have to do my deal when Apple stock is on an 'uptick.' And vice versa for a pro-Apple 'bet'...i.e., the stock needs to be on a downtick before I can bet on it in that put/call market. Otherwise you'd have tons of folks, observing a rise in a stock's price, let's say, and they'd pile in saying, "I bet the stock is going to rise." Puts and calls are created as insurance (risk management), not mirrors of already-established activity.
There are cases where a company might want to insure its own stock, using puts. Example:
Company A is being bought by Company B for X-number of Company B shares. In that case Company A would buy the puts on Company B stock, not their own. Why? Because the time between the acceptance of the deal, and the consumation of the stock transaction, means that the 'currency' (Company B's stock) is at market risk, and if its shares drop in price, then the deal, for X-number of shares is worth less when the shares change hands, than it was when the deal was accepted. The ONLY time Company A would do a similar put trade on their own stock would be if the terms of the deal were based on, say, a percentage (like 120%) of Company A's market value (numShares x sharesOutstanding). That would be a rare deal, that I haven't seen.
To sum up:
Vonage couldn't buy puts on an IPO of their own stock, because there's no previous up, or down, 'tick.' But a company might hold many shares of its own stock, and a series of puts on the stock would be justified. Why? Because if their holdings dropped, the loss is on paper, and would be made up for by the profit on the puts. Still, it would look crappy, in terms of PR, but could be explained. The simplest explanation being: "If we were negative on our shares, long term, we'd sell, but we aren't negative, so we are holding the shares, long term, and protecting equity, by managing the risk inherent in being exposed to market forces." The company's holdings of their own stock is a de facto liquid part of company equity, and is part of the intrinsic value of their shareholders stock. So they're protecting ALL shareholders, not just the compan, or insiders. Very simple, very straightforward.
And, no, I don't even have a driver's license. :=)
As a matter of fact, I have a friend whose business partner sold a software company (division) some years ago. At the time of the deal's acceptance it was worth around $550 million. There was a 6-month 'gap' before consumation. I told my friend, "Tell your buddy to buy puts on the other company's shares, on the next uptick, just enough contracts to cover the current value of the deal."
There's a lot of leverage in puts and calls, so, for about 30 grand the guy could have bought puts going out 6 months to insure the deal at around $550 million.
Unfortunately:
I had no 'certification', no series anything, I didn't 'count', and he ignored the advice. I still have no license, and the 'other guy' lost somewhere between $175-215 million bucks (I forget the exact amount) when the 'other' company's shares dropped in the 6-month interim. He would have still 'lost' the 'value', in terms of the stock, itself, but would have profited an equal amount in the increased value of the put contracts. Tough luck for him. C'est la vie, pal.