| NEW YORK (CNNfn) - Goldman, Sachs & Co., the oldest investment bank on Wall Street, entered a new era Monday when it announced plans to sell nearly $3.7 billion in stock to the public.
The offering, the second biggest in U.S.
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history, will give Goldman publicly traded stock to use for acquisitions and for rewarding its employees, something it has not had since its founding as a private firm in 1869.
It will also provide a rich payday for Goldman's partners.
Just after the closing bell, Goldman said it had priced its offering at $53 a share. The offering is for 69 million shares, including an overallotment.
The price, settled on in discussions between issuer Goldman and the pricing team of Donaldson, Lufkin, & Jenrette, Merrill Lynch and Morgan Stanley, is $2 short of the maximum.
Goldman said it anticipated pricing the offering between $45 and $55, in an April offering statement to the Securities and Exchange Commission.
Companies can exceed their maximum estimate, however. Some analysts took Goldman's pricing below the high point of its range as a sign of weakness.
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"If they could have priced it to get the extra $2, they would have, let's not kid ourselves," said Mike Le Coney, who tracks finance companies for Security Capital Trading.
Le Coney noted the popularity of online trading, particularly discount brokers, and a growing trend of online IPOs via Dutch auctions of stock on the Internet. Those issues are raising questions in investors' heads about traditional investment banks such as Goldman.
"That would be a very real threat to the profitability of the 'investment banking' business," he said.
Goldman will start trading its shares tomorrow on the New York Stock Exchange under the ticker symbol GS. Last October crude-oil and natural-gas supplier Conoco Inc.
launched the largest initial public offering in history when it sold $4.4 billion in stock.
Goldman had filed to offer 60 million shares. The New York investment bank is selling 42 million shares itself, raising $2.2 billion.
Two Japanese financial institutions are each selling 9 million shares.
The underwriting team, which Goldman is leading, exerted their overallotment option of 9 million shares.
With the overallotment, the total value of the shares that will start trading tomorrow is $3.657 billion. Goldman withdrew an initial public offering late last year when the bond and stock markets turned down.
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It then priced its shares between $40 and $50 in a March filing and in April it raised its offering range to $45 to $55.
Given Goldman's esteemed name in investment-banking circles, analysts expected the offering to be popular. It will also set the standard for public offerings.
The bank is one of the most-experienced and best-informed when it comes to underwriting public offerings.
The gossip on Wall Street is that Goldman micromanaged what it hopes will turn out as a model initial public offering. Many eyes will be watching where the stock heads tomorrow.
"They're basically showing off and endorsing how to do an IPO," said Ivo Welch, a finance professor at UCLA who tracks public offerings.
He expects a 20 percent to 50 percent run-up in the stock tomorrow.
At the outside, he said, the stock could see a 100 percent gain.
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That sort of first-day bump in price would raise eyebrows at Internet companies that have recently gone public or are looking to go public.
They will be particularly interested in Goldman's stock tomorrow, Welch said, since Internet stocks can see 400 percent or 500 percent stock gains the day they start trading.
"If I was one of the Internet stocks, I would wonder why they took my shares public at a quarter of what they traded in the market."
Companies will watch how Goldman, Sachs conducts its own offering and demand the same from any underwriter, he said.
The shares Goldman is offering constitute around 13 percent of the company.
That values Goldman a little over $30 billion, a similar market capitalization to Merrill Lynch. After the offering, retired partners will own 47 million shares of stock and current employees will hold 115 million.
The big payday comes to Goldman's senior partners. The 221 partners will own 264 million shares, more than $63 million per partner.
Goldman's offering may be priced to guarantee a bit of a leap when the stock opens Tuesday.
But when companies aren't at the highest end of their range, investors "are afraid this isn't going to be the hottest offering in town," Welch said.
"Presumably the investors who went to the road shows didn't figure they were worth that much more than $30 billion."
Still, the offering's timing worked out well.
"It looks like a great IPO," Welch said. "They've got great timing in terms of the market being at an all-time high." Goldman's IPO pricing came minutes after the news that the Dow Jones industrial average had closed over 11,000.
Postponing the offering was a good move, said Raphael Soifer, a financial-services analyst with Brown Brothers Harriman & Co.
"The industry and Goldman Sachs in particular are coming off record earnings in the first quarter," he pointed out.
Goldman's third-quarter numbers were weak and the fourth quarter was "disastrous," so an IPO around that time in a down market would not have been a good idea.
When it filed again, Goldman also placed a greater emphasis on e-commerce and the Internet.
Although Goldman was not alone in stumbling into trouble late in 1998, "they had problems, and not all their competitors did," Soifer said.
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In particular, he noted that Morgan Stanley and Chase Manhattan "came through with flying colors."
Goldman had net revenues of $8.5 billion and pre-tax earnings of $2.9 billion for fiscal 1998, which ended in November. For the first quarter of 1999, Goldman earned $1.2 billion on pre-tax on revenues of $3.0 billion.
Famously private Goldman has said it is going public to give it stock to finance acquisitions, permanent capital to finance growth and a way of sharing ownership among employees.
Prior to the offering, the 221 senior partners shared Goldman's profits. Goldman will now be able to use its stock as compensation, to attract and retain a greater number of employees. It will be easier for the investment bank to retain mid-level employees but it loses its edge in retaining partners.
"It will be harder to retain the absolute superstars," Welch, the professor, said.
Goldman needed stock to fund expansion in a consolidating finance industry. It does not appear interested in buying a commercial bank, Soifer, the bank analyst said.
He expects Goldman to pursue investment-management targets, such as companies that manage mutual or pension funds. It will also be interested in non-U.S.
investment banks, in Europe, Asia or Latin America.
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Goldman has said it will not make any immediate buys.
Goldman said in its SEC filing that it was offering 12 million of the shares outside North America. The massive deal has five tiers of underwriters.
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The co-managers of the offering are a Who's Who of Wall Street's big investment banks:
Bear, Stearns & Co.; Credit Suisse First Boston; Donaldson, Lufkin & Jenrette; Lehman Brothers; Merrill Lynch & Co.; J.P. Morgan & Co.; Morgan Stanley Dean Witter; PaineWebber Inc.; Prudential Securities; Salomon Smith Barney; Sanford C.
Bernstein & Co.; and Schroder & Co.
Goldman Co-Chairman Jon Corzine led the offering and will step down once it is complete. Co-Chairman and CEO Henry Paulson will head the company.