What is it?

An IPO is an initial public offering, meaning it is the first sale of shares by a company to the public. Companies offer an IPO either when they are starting out and need to raise capital or when they have been in business for a longer time but have not yet gone public and need more operating funds. IPOs can be risky investments but can potentially be very lucrative. Once an IPO occurs, the company will be listed on a major stock exchange and the shares will be traded immediately. The shares will normally be valued by the stock market in relation to the expectations of the future earnings of the company.

Why is it in the news?

Due to the financial crisis, IPOs have not been not very popular for the last few years. In 2010, however, there has been an increase in the number offered. Renaissance Capital’s IPO Home Website tracked 57 of them in the first half of 2010 and they raised over $8.5 billion for the companies that offered them. That is 350% more than was raised in the first six months of 2009. Not all IPOs are great business deals, but the more successful ones provided returns of between 13 and 35% to their investors.

How can I use it in class?

Predicting

These numbers come up in the Bloomberg text. Ask students to look at the numbers (1–6) and match them to the topics (a–f) they think the numbers relate to. Students can then read the text and see how many they got right.

1. $6.3 billion  
2. 20 million  
3. $912 million  
4. 2.4 percent  
5. 51 percent  
6. 21   

a. the number of subscribers to the Daily Deal website in Chicago 
b. the amount raised in London trading of shares in Facebook Inc. by
Mail.ru Group Ltd, a Russian investor
c. the amount by which Mail.ru’s revenues are predicted to increase in 2010
d. the amount in assets overseen by JO Hambro Capital Management Ltd, a firm which manages money in emerging markets
e. how much of Facebook Inc. is owned by Mail.ru
f. the number of countries included in the MSCI Emerging Markets Index

Vocabulary

Ask students to match these words (1–10) from the text to their meanings (a–j) below.
1. to surge
2. Moscow-based
3. existing shareholders
4. declined to be named
5. to trade at
6. over-allotment option
7. oversubscribed
8. social networking service
9. depreciation
10. amortization

a. a web-based service which allows individuals to create personal, professional and private networks
b.  those who already own stock in the company
c. the reduction in value of an intangible asset
d. to be sold at a particular price
e. to suddenly increase
f. having more people wanting to buy shares than are available
g. an agreement allowing those issuing a stock to purchase additional shares at the original offering price
h. the reduction in value of a physical item or tangible asset
i. with headquarters in Moscow
j. did not want their identities to be known

Reading

Have students read the text. Ask them to work in groups and summarize the text. The summaries can be written or oral and then presented to the class.

Discussion

Have students discuss these questions in class.

• Why do you think that the IPO in Russia did so well? Do you think that social networks are popular globally? Why or why not?
• Do you think it is a good idea for the company to use some of the money to fund the acquisition of an additional stake in vKontakte, a Russian social network service? Do you think social networking sites make good investments?  Why or why not?
• Discuss the global economic situation and talk about the reasons that emerging markets are doing better at the moment than industrialised nations. Do you personally think this trend will continue?

Where can I read about it?

Facebook Backer Mail.ru Jumps 41% After $912 Million London IPO. Bloomberg, November 11th 2010
List of current IPOs. Renaissance Capital, November 5th 2010
The Best IPOs of 2010. The Street, June 18th 2010

Key

Numbers

1 d
2 a
3 b
4 e
5 c
6 f

Vocabulary

1 e
2 i
3 b
4 j
5 d
6 g
7 f
8 a
9 h
10 c