WASHINGTON, November 2, 2017 – In our companion column today, we provide the latest details on our ever-sinking holdings in Allergan’s convertible preferred shares (symbol: AGN/PRA). But in this column, we’ll tell you about the IPO disaster we escaped just this morning, the disastrous offering of the funked-up shares of Funko, Inc., (FNKO). This tchotchke company’s bizarre, ill-conceived and ill-received new shares were stinkers from the moment they began to trade.
While the evil spirits of Halloween still haunt our Allergan position, the Funko IPO looked suspicious from the get-go. The offering of this company – primarily a manufacturer/marketer of licensed products and bobbleheads linked to popular movie franchises – was originally expected to price somewhere between $14 and $16 per share. Instead, the underwriting syndicate priced them last night at a mere $12 per share, considerably below the bottom point of their expected range.
A lower pricing of an IPO doesn’t necessarily mean disaster. But this pricing revision was beyond a reasonable range, indicating scant investor and institutional interest in the offering. The situation was made worse when the underwriters also downsized the number of shares in the offering, indicating an even more dismal demand outlook.
We were originally suspicious when we read the prospectus for this IPO (which we always do) and noticed its bizarre, investor-hostile structure. Given its several classes of stock (A shares, B shares, etc.), it was clear that the new shares would minimize the input of the average common shareholder in corporate matters by diluting their voting power.
Even after reading all the verbiage, I still don’t understand how this company’s bizarre, interlocking share structure works, except that it’s obviously designed to work against my own interests as a potential shareholder.
For that reason, I figured that unless the IPO pricing of FNKO showed some promise of near-term profitability for new retail shareholders, I’d probably take a pass. When the issue’s offering size and share price were subsequently cut drastically, I rescinded my offer to buy shares, given my recent run of bad luck with a trifecta of horrible IPOs, plus that ongoing Allergan disaster.
Funko’s IPO has proved funky indeed. After pricing and opening at $12 per share, the usual raft of IPO flippers didn’t just flip these subnormal shares. They dumped them wholesale, and the dumping continues as we write this. Even Funko’s own underwriters won’t help them.
After the opening trade, Funko shares quickly lost near half their IPO value before mounting a feeble bounce. Shares are currently trading at $7.25 per share, a horrifying 40 percent drop from that IPO price. IPO investors were underwater on this investment from the get-go.
Longer term, I wonder when or even if IPO underwriters are going to lay off the current fashion of launching “screw the shareholders” IPOs in new or newish companies with near-zero track records of profitability. This new IPO fashion is cynical, greedy, anticompetitive and outright condescending, particularly to small investors eager to get involved in a hot deal.
The whole point in abandoning your passbook savings accounts and investing in stocks is to have at least a chance to earn superior returns on your hard-won investment dollars. One key item that gives you at least a modest edge in this environment is the power of your shareholder vote, which you don’t have with that passbook or CD.
Under extreme circumstances, share voting power can give you and other investors the ability to oust board members or lousy corporate management by joining with institutions and other individuals to vote out lazy or ineffective management.
By creating exotic share structures or, worse, nonvoting common shares, greedy, selfish companies, founders, owners, and underwriters today communicate that they want your money but then want you to just shut up. That policy doesn’t work for me, and I’ve complained about it before in these columns. It won’t work for you, either.
Clearly, this lousy attitude toward the small investor didn’t work for discriminating IPO fans, either. Collectively, they gave the finger to this miserable IPO offering by the funky Funko folks and their hideously brazen underwriters.
The Funko IPO should never have seen the light of day, or at least not in its current format. As of midafternoon today, those lost souls trapped in these odious shares are sorry they took the bait.