Much speculation surrounded Square’s IPO. Facing a struggling IPO market and steep competition from companies such as Apple and PayPal, many wondered if Square could reach its fundraising goals. These fears were confirmed when Square set its IPO price at $9 per share, well below the expected range of $11-$13. However, after its public debut on November 18th, shares opened at $11.20, and at one point, increased more than 64 percent. Square closed its first day of trading at $13 per share, still 45 percent above its initial public offering price.
Dual-Class Structure: An Option for Innovators and Market Stability
A dual-class structure is a feature of corporate governance that allows for the creation of two categories of shareholders—each class with different voting rights. The increasing number of corporations adopting this type of structure before going public has recently made headlines in regulatory, professional, and scholarly circles. In spite of the critiques, there are reasons to believe that it is an important tool to promote innovation and prevent market volatility.
Much of the controversy surrounding differentiated shares boils down to discomfort with the fact that this structure inherently limits the rights of certain shareholders and broadens the rights of others. In this sense, it is no surprise that use of differentiated shares has been continuously debated since the Securities and Exchange Commission (“SEC”) unsuccessfully tried to ban them in the 1980s.
Government Secures its First Win under Dodd-Frank Anti-spoofing Provisions
The Department of Justice (“DOJ”) has secured a criminal conviction in its first case concerning the manipulation of high-frequency markets by “spoofing” orders purposefully designed to influence movement within those markets. Michael Coscia was convicted of six counts of commodity fraud under 18 U.S.C. § 1348 and six counts of “spoofing” under 7 U.S.C. § 6c(a)(5)(C) after a reported jury deliberation lasting only one hour.
Airbnb Raises $100 million in Latest Round of Funding
Airbnb, the San Francisco-based tech company that allows homeowners to rent their residences to visitors, recently completed a new round of funding that raised more than $100 million. This round of financing comes on the tail of a similar round this summer that raised more than $1.5 billion for the late-stage startup. The company’s valuation of $25.5 billion remained steady through the latest round.
In its latest quest for investor financing, Airbnb touted strong year-over-year growth and promising revenues to attract investors. In investor presentations, the company claimed $340 million in third-quarter revenues from approximately $2.2 billion in bookings. Those numbers were up sharply compared with the same period last year. Moreover, the company increased its 2015 revenue projections to $900 million, a $75 million increase over the $825 million projection issued in July.
Pfizer and Allergan to Merge in $160 Billion Deal
On November 23, 2015, pharmaceutical giant Pfizer, Inc. announced a $160 billion merger deal with Allergan Plc that will create the world’s largest drug maker by sales, keeping pace with the unprecedented surge in healthcare mergers and acquisitions in 2015.
The combined entity will be renamed Pfizer Plc and its headquarters will be in Ireland, where the corporate tax rate is 12.5 percent, compared to 35 percent for a comparably sized company in the U.S. Post-merger, Pfizer shareholders are expected to own about 56 percent of the combined company, with the remaining 44 percent owned by Allergan shareholders. Expected to close in the latter half of 2016, the transaction is subject to certain closing conditions, including receipt of regulatory approvals in the U.S. and the European Union and the receipt of Pfizer and Allergan shareholders’ votes.
Tax Bill Threatens the Dell-EMC Merger
Last October, Dell offered to buy EMC for $67 billion, making it the largest tech merger ever. This merger will create a new technology giant that will sell both consumer and IT products, ranging from personal computers to data storage gear for corporate data centers.
To finance this acquisition, Dell will use a combination of borrowed cash up to $49.5 billion and tracking stocks in an EMC subsidiary called VMware. The offer valued EMCat $33.15 a share, for which Dell will pay $24.05 in cash per share and give EMC shareholders a special stock that tracks the share price in VMware. Intended to offset the amount of debt Dell will take on, those tracking stocks seriously threaten the feasibility of the deal because of a possible $9 billion tax bill.
Emergency Hearing Set for FanDuel and DraftKings
On Wednesday, November 25th, while many households prepare for the Thanksgiving holiday, New York-based users of fantasy sports companies, FanDuel and DraftKings, will also be awaiting the outcome of an emergency hearing before the New York Supreme Court. The hearing could decide whether the companies receive a preliminary injunction to operate while the illegal gambling cases against them are pending, a process that could take over a year.
The hearing will be the latest match up in the ongoing public legal battle between New York Attorney General Eric Schneiderman and the two largest daily sports fantasy companies. On November 10th, Schneiderman sent “cease-and-desist” orders to FanDuel and DraftKings, instructing the companies to stop accepting illegal bets from New York residents. In response, FanDuel and DraftKings requested relief through a temporary restraining order to stop Schneiderman until the companies could present their cases. The court denied the companies’ requests but set the date for the emergency hearing.
Federal Circuit Rules that ITC Lacks Regulatory Power Over Digital Imports
On November 10, 2015, the Federal Circuit ruled in ClearCorrect Operating, LLC v. ITC (“ClearCorrect”) that the U.S. International Trade Commission (“ITC”) does not have jurisdiction to regulate digital data imports. The court held that the ITC’s regulatory power is limited to “material things,” and electronically transmitted digital data is not a “tangible good.”
The decision overturned the ITC’s April 2014 finding that ClearCorrect was barred from importing data sets converted from scanned models of patients’ teeth. The ITC had found that ClearCorrect infringed seven of Align Technology’s patents by using the data sets to create dental aligners, a method to reposition teeth, via 3D printing.
The appeals court explained that Section 337 of the Tariff Act of 1930 was enacted to stop the importation of articles involved in unfair trade practices. “Articles” was defined by the court as tangible, “material things,” which do not include non-physical articles such as electronic transmissions of data sets.
New Stock Exchange Could Use “Speed Bump” to Combat High-Frequency Trading
Recently, an investment company known as Investor Exchange, or IEX, proposed a new solution to the problems created by increasingly complex and high-speed stock markets. The firm plans to create a new American stock exchange that use a 350 microsecond “speed bump” as a limit for traders to place and cancel orders. IEX has proposed to create such a tool within the next five years to fight against high-frequency trading.
This proposal has already drawn some criticisms. Notably, other large stock exchange companies and high-speed trading firms have argued that this “speed bump” will make the stock market more complicated. The extra complexity might therefore benefit one side of the market over the other. Moreover, ordinary investors might enjoy trading immediately at the market price.
Mutual Fund’s Devaluation of Snapchat Raises Concerns for Tech Startups
The number of unicorns, companies valued at over $1 billion, has greatly increased, growing from 43 companies at the beginning of 2014 to around 128 companies in November. However, these companies are often difficult to value because the shares are privately held and there is no readily available market price. This is a serious problem for mutual funds since they are legally obligated to value each of their portfolio holdings everyday. The values can fluctuate between mutual funds as firms use different methods to value startup companies.
On November 10, 2015, Fidelity devalued its stake in Snapchat by 25%. Fidelity also devalued several more startup companies: Blue Bottle Coffee, Dataminr, Zenefits, and others. These markdowns may suggest that the market is slowing down or that these companies’ values were inflated. The high valuations might have also been a result of competition between investors to acquire the next big startup, driving up valuations. Fidelity is not the only fund devaluing its stake in startups, as the asset manager Blackrock devalued Dropbox.