INITIAL PUBLIC OFFERINGS

Initial public offerings

Initial public offerings

To issue an IPO, an organization must first register with the Securities and Exchange Commission (SEC). The SEC, however, is concerned not with the merits of the offering (is it a good investment?), but rather with the adequacy of the information disclosed to all potential investors. The SEC requires firms to disclose information that privately held firms may not otherwise have to make known (netcompetitionblog.org).

This information includes its business and associated business risks (including its competition), audited financial statements, its officers' and directors' identity and their compensation, material transactions between the company and its officers and directors, material legal proceedings involving the company or its officers and directors, its securities distribution plan, and the intended use of the proceeds of the initial public offering. Not until the SEC declares its registration statement effective can a firm sell securities associated with its IPO in an open, public market (netcompetitionblog.org).

Given that eBay's announced spin-off/IPO of Skype in 2010 is a material market event, this high-profile IPO represents a potentially tectonic development in eBay-Skype's (and FreePress') push for wireless net neutrality/Carterfone regulations and applying the FCC's broadband principles to wireless providers for the first time. There are much broader implications of this market development than many appreciate.

Some brief background information is helpful to understand the broader implications: Reports suggest that eBay's plans for a public IPO in 2010 is a result of eBay not being able to get a high enough private market price ($1.7b) for Skype and the fact that current market conditions are not ripe for initial public offerings. (eBay originally paid $2.6b for Skype and added an additional $500m later, then subsequently wrote down $1.4b of Skype's value.)

EBay-Skype unsuccessfully petitioned the FCC in 2007 to apply monopoly-era Carterfone regulations to wireless. The FCC did not grant the petition. The issue resurfaced again in Washington as FreePress, in a 4-2-09 letter to the FCC, argued that net neutrality should apply for the first time to wireless networks and specifically that Skype's voice application should be able to make calls over carrier's 3G networks (netcompetitionblog.org).

So how does eBay-Skype's pending IPO change the landscape? First, Skype's public push for wireless net neutrality is highly material to the valuation of the Skype IPO and eBay going forward. The financial purpose of the IPO is to unlock value for eBay shareholders, potentially billions of dollars over time, ...