Break Issue

  

Categories: Stocks, IPO, Banking

Occurs when a stock trades below its initial public offering (IPO) price shortly after becoming publicly traded.

CR7 Corp., a private men’s hair gel company, decided to sell stock to the public to finance its plans to expand into the eyebrow wax market. Unfortunately, CR7’s CFO was extremely overconfident in his estimate of how much the market would value his firm’s offering, and insisted on setting an IPO price of (a perfect) $10.

Shortly after the opening bell, shares broke issue, trading as low as $2 per share. Eventually, a private equity firm, Messi, Inc., bought all outstanding shares for $3 per share, taking over ownership of CR7.

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Finance: What is an IPO?25 Views

00:00

And finance allah shmoop What is an i p o

00:07

Well this is a hippo and it has nothing to

00:09

do with an ipo Auras Normal humans pronounce it if

00:12

both well actually most people just spell it out I

00:15

po It stands for initial public offering In the three

00:19

words tell the story and i pl refers to a

00:21

company who's raising money by selling shares of itself to

00:25

the public for the first time a maiden voyage in

00:28

public funding if you will Whatever dot com has forty

00:35

million shares outstanding after three private rounds with venture capitalists

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and private investors it wants to raise money to go

00:41

big internationally And for the first time it will offer

00:44

shares to joe and jill public And that means that

00:48

all of it shares will be tradable publicly on the

00:51

open market like on nasdaq or the new york stock

00:54

exchange That is the insiders early investors founders et cetera

00:58

will be able to just call their broker at schwab

01:01

or fidelity or wherever and sell their shares get liquid

01:05

and buy themselves a maserati because it's not what everyone

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does after a nice meal So whatever dot com sells

01:11

ten million shares a twelve bucks each to raise one

01:13

hundred twenty million dollars which they can spend to build

01:16

out offices all over the world So yeah that's an

01:18

ai po and that's Why a company generally wants to

01:21

make shares available to the public because once you've made

01:24

an initial public offering and you make money off the

01:27

sales of your stock you khun by as many hippos

01:30

as you like and just remember to feed them three

01:33

times a day they get Cranky if they go too 00:01:35.158 --> [endTime] long in between No

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