Behind the Twitter IPO, the Mike Gupta, Goldman Sachs gameplan

Written by Reuters | Updated: Nov 10 2013, 02:07am hrs
Mike GuptaMike Gupta, Twitter's chief financial officer, leaves JP Morgan headquarters after a meeting, before the firm's IPO in New York. (Reuters)
As Twitter Inc's chief financial officer planned the companys initial public offering this year, he had one overriding goal: To avoid becoming the next Facebook.

Mike Gupta grilled banks about how to sidestep the problems that beset Facebooks IPO from start to finish, asking detailed questions about everything from how to pick an exchange to how to communicate with analysts.

They were really information and data hogs, said one person who worked on the process. They wanted a lot of different perspectives and to make sure that they did this right.

In the end, Twitter Inc made different choices from its rival social networking site. Facebook selected Morgan Stanley as its lead underwriter, while Twitter Inc picked Goldman Sachs. Facebook listed on Nasdaq, where trading glitches marred the initial hours of trading, while Twitter Inc listed on the New York Stock Exchange.

Bankers said Gupta and Twitter Incs director of investor relations Nils Erdmann also looked closely at what worked and what did not for other internet companies that went public, including Pandora Media, Zynga and LinkedIn.

A key player in the IPO was Goldmans lead Twitter Inc banker, Anthony Noto. Noto has built the team into the number one US underwriter for tech IPOs so far this year, over Morgan Stanley and rival banker Michael Grimes who led the Facebook IPO, as well as other high-profile deals including Google and LinkedIn. Those that have worked with Noto praise his low-key, no-nonsense style.

Every banker talks about wanting to build a relationship but after you do a deal with them, you are dropped like yesterdays newspaper, said Ed DiMaria, the chief financial officer of Bankrate who first worked with Noto when he helped take his company public in June 2011. With Anthony, its not about getting paid or the next deal its about the relationship and how he can be helpful to the company.

Twitter Inc could not be reached for immediate comment. Goldman Sachs and Morgan Stanley declined to comment. Twitter Inc delved into areas many companies rarely consider, including how its shares should be allocated among the underwriters, and whether overpricing or underpricing a deal would hurt its brand.

Noto and his team were loath to take any risks that would jeopardise the deal, such as putting too many shares in the hands of retail investors who would flip the stock on the first day of trading.

In the end, Noto got his wish as half of the 70 million shares that Twitter Inc sold during the IPO ended up in the hands of large long-term holders.

Twitter Inc decided to price its IPO at $26, a relatively conservative figure as underwriters were weighing pricing the deal at as high as $28, according to investors. But underwriters decided that it made sense to price the deal at a lower point and leave room for a larger first day pop rather than follow in Facebooks footsteps even if it meant leaving more than $1 billion on the table.

Facebook, which priced its deal at $38, saw underwriters battle to keep its shares from dipping below the IPO price on the first day of trading. The shares continued to drop to fall as low as $17.55 in the months following the companys public debut. It took over a year for the stock to recover.