Whenever a company pursues an Initial Public Offering, it does so with the intent of “going public.” This entails a corporate offering its equity shares for the public to buy as a means of investment. This move is aimed at raising additional operational capital for its growth and future projects. Microsoft made its IPO in 1986 with the sole reason of expanding the company’s reserves regarding funds. After its establishment in 1975, the company took long to go public due to the desire of the CEO Bill Gates, to retain control of the company to ensure the entity stuck to its core ideals which he could only protect.
The company, further, had no need for venture capitalists that are usually eager to exploit the company’s gains (Cusumano and Selby 33). However, after pressure from the company’s management Bill Gates agreed to have Microsoft go public. The IPO was highly successful with the offer price set at $21. It closed the day at $35.50 creating profit payments for the original shareholders such as Bill Gates and other Microsoft employees. These shareholders made profits by selling some of their interests in their share of Microsoft. The stock underwriters were the other parties that got paid $4million fees for the services availed to the entity.
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The syndicate of underwriters that offered underwrites the Microsoft IPO sharing the fees as well as the risks made profits. The 114 firms that formed the syndicate were chosen depending on their history in both stock markets and technology companies. The top underwriters, Goldman Sachs, raised the offer price to $16-$19 due to the favorable dynamics of the market regarding the Microsoft IPO. Additional communication with other “large potential investors indicated that an offer price in the $20-$21 range would fly” (Shirvani and Wilbratte 4). Part of the underwriters assumed that the offer price was too high with the probability of chasing away potential investors.
Microsoft, on the other hand, was skeptical of the price advanced by the underwriters citing that they were “attempting to balance the interests of the institutional investors who were their ongoing clients against those of Microsoft” (Shirvani and Wilbratte 4). This prompted further negotiations with the two parties leading to a compromise offer price of $21. The stock traded at $25 meaning that the IPO was profitable shielding the syndicate of underwriters from losses. As a profitable venture, the underwriters made profits based on the underwriting fees levied on Microsoft (Cusumano and Selby 65). Had the offer price fallen the underwriters could have sustained losses as it usually happens with general market declines.
As an attractive investment, Microsoft share price rose at high levels for each financial period. After three months the stock market closed at $32.25 (Cusumano and Selby 105). After a year the stock market closed at $82.75 signaling the continued investor confidence extended to Microsoft and its products as well as a business model (Cusumano and Selby 112). The stock price plummeted after three years to $52.75 which given the economic circumstances sufficed as okay for the investors. Over the years, Microsoft has grown unprecedentedly. This has been observed even in the recent economic downturns prompted by the global economic crises such as the Asian economic meltdown and the 2008 financial crisis. The company has also proven to be an innovative brand as well as the face of the computer age. This continues to work towards to its favor as more investors continue seeking ways of investing with the entity. The company has also gained much from its founder, Bill Gates, zeal and positive image that radiates with many consumers and investors globally.
