The hard sell has only just begun for Oliver Curtis
Convincing billionaire shareholders dilution beats doughnuts may be the only way to save Firmus
The collapse last week of the Firmus Technologies float spawned a round of public hand-wringing, with some arguing the flop of Australia's biggest-ever technology IPO reflected poorly on the capacity and maturity of our capital market. Some observers, such as Firmus shareholder James Packer, even claimed the flop was attributable, at least in part, to our national tall poppy syndrome, where spite and jealousy bring down those taking risk and enjoying success.
Nothing could be further from the truth. In reality, the float of Firmus – the company seeking US$5 billion in new money – was a national IQ test. And thanks to the work of dozens of unsung analysts beavering away in our giant investment funds, Australia passed the test with flying colours. It turns out we can sort the sheep from the goats.
The Firmus IPO was doomed from the start and the guardians of our $4 trillion in super savings spotted the overarching fatal flaws which – apart from irrationally exuberant initial pricing itself – were the structure of the share register and the shape of the aftermarket.
The incredible profits being realised in the float by the pre-IPO shareholders of Firmus meant that the majority of those investors wanted to cash in some or most of their shares, and this would have created a tsunami of selling pressure the moment the stock went live on the ASX order system. That overhang guaranteed that Firmus shares, as night follows day, would have started falling on day one and kept falling for days and weeks until the pre-IPO investors were sated.
The situation was actually worse than that. Firmus had raised $2.9 billion in new quasi-equity in August from just four investors – AI chipmaker Nvidia and alternative asset managers Blackstone, Coatue and Jane Street – at a share price equivalent to $4.51, being less than half the original slated IPO share price. While Blackstone, Coatue and Jane Street talked of being long-term backers of Firmus in August, by the time the IPO came around they point blank refused to have their shares escrowed.
And instead of stumping up $1 billion each in the bookbuild, as they had indicated earlier, Blackstone, Coatue and Jane Street each bid for less than $100 million worth of new stock in the float. The big three fund managers were strapping on parachutes and getting ready to jump.
