Bill Ackman was in typically bullish form yesterday, insisting it was “good” that shares in Pershing Square tanked 10 per cent on debut. “If it went up, we’d have sold it too low,” he said.
To some extent, he has a point though. If shares turn green and jump considerably after a listing, you can end up with red faces all round – as demonstrated by last year’s Royal Mail flotation. No one wants to get ripped off, especially when political sensitivities are at stake.
Yet needless to say there are also reasons against pricing too high – loss of reputation, fear of being left with a load of shares that can’t be shifted on the secondary market… or even the danger that the IPO won’t get off the ground in the first place. For a government embarking on a series of sell-offs, the prospect of the latter outcomes would have been terrifying.
These things need to be taken into consideration amid any furore surrounding the appointment of UBS to help with the sale of the state’s stake in Eurostar. Did they and others on the deal price Royal Mail too low? Possibly – but shares are now close to falling back to where they started. A bit like Facebook in reverse. Its shares collapsed on debut, yet regained the lost ground as the months went on.
It’s incredibly difficult to know how much any asset is worth. This is why markets consisting of a multitude of scattered investors tend to do a better job than a few central planners – and even then the markets sometimes get it completely wrong.
The Royal Mail pricing is no reason in itself to exclude UBS from advising on the government’s future deals.