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."

Comments

What?

[Don_dumb]

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?

Re:What?

[Stone Pony]

"A class act would forgive the customers and offer to either release them from the agreement or offer them a chance to change the terms to something that won't cost them money"

Alternatively, you could argue that a class act would stop bleating about how his "can't miss" money-making proposition didn't work out the way he'd hoped and pony up the cash that he'd freely agreed to pay.

Just a thought. I don't really care one way or the other, but it would be nice to see someone standing up for the notion of personal responsibility.

Sued the customers, now sue the owners

[syousef]

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).

Re:Sued the customers, now sue the owners

[gowen]

Re: vonage: there's nothing weird about sueing someone who breaches a contract (even a verbal contract) with you.
Why would it matter that the contract is about share deals, or anything else?
Can you imagine how the prospective buyers would react if the shares had shot up, and Vonage management had said that they'd decided to sell them at the higher price?
If you want to become a stock market speculators, you have to learn to cope with the fact your going to be wrong sometimes, and suck up the loss you take.

Re:Sued the customers, now sue the owners

[Don_dumb]

Can't wait till a company gets so desperate it sues itself. (I bet it's already happened and I get lots of links).

It just so happened three years ago, that Fox News attempted to sue the makers of the Simpsons - http://washingtontimes.com/entertainment/20031029- 091743-7849r.htm, both are of course part of the same company.
It just goes to show that too many suits 'Sue first, think later'.

Re:Sued the customers, now sue the owners

[nodwick]

Re: vonage: there's nothing weird about sueing someone who breaches a contract (even a verbal contract) with you. Why would it matter that the contract is about share deals, or anything else?

Can you imagine how the prospective buyers would react if the shares had shot up, and Vonage management had said that they'd decided to sell them at the higher price?

If you want to become a stock market speculators, you have to learn to cope with the fact your going to be wrong sometimes, and suck up the loss you take.

A lot of the complaints have centered around the really poor execution of the sale. Shares were supposed to be issued to the buyers at the IPO price immediately, so that buyers could then trade them on the first day. Instead, the underwriters screwed up their purchasing system so that buyers couldn't put stop-loss orders or sell their shares on the way down and limit their losses; instead, the computer system refused to accept sells and forced them to sit there watching the share price fall. Even worse, some buyers were initially told they weren't allocated shares, only to find out at the end of that day that they actually were given shares. (To extend your analogy, how would you feel about initially being told you wouldn't get any shares, then the price tanked, and THEN you were told that whoops, we made a mistake, and we're going to be selling you shares at a 12% markup to the current market price anyhow?)

Note that IPO shares are typically priced slightly below what the company thinks the fair value is, in order to give the initial purchasers a good deal. The more paranoid (cynical?) have suggested that Vonage deliberately overpriced its shares and used its own customers to prop up its IPO price. Given that customer relations for the company weren't stellar to begin with (too many horror stories dealing with their staff), this is going to generate a lot more negative PR with both their current customer base and potential future customers.

a small mistake at the start?

[EsonLinji]

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.

Vonage originally offered not to pay

[nodwick]

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.

Re:Let's piss off investors and potential sharehol

[Andy_R]

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.

Re:Vonage *may* be justified in doing this..

[ps]

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

Re:Worst. IPO. Ever.

[alexander_686]

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.