Groupon IPO Terms… Its Own Groupon at Half-Off (GRPN)

Groupon, Inc. (NASDAQ: GRPN) has set its initial IPO terms and the valuation is still astronomical yet far less than what had been expected before.  The social couponing website plans to sell some 30,000,000 shares of Class A common stock in a price range of $16 to $18 per share.  This sets the value close to a range of over $10.0 billion to about $11.3 billion, half of what many were expecting the value of the company would be.

While we are not excited about the offering, the model , and the pricing, Groupon does remain one of the top 17 IPOs to watch in 2011. Still, this is no IPO meant for widows and orphans.

There is a massive underwriting group.  Morgan Stanley, Goldman Sachs, and Credit Suisse are the book-runners of the offering.  C-managers include Allen & Co., BofA/Merrill Lynch, Barclays, Citigroup, Deutsche Bank, J.P. Morgan, Wells Fargo, William Blair, Loop Capital, RBC Capital, and Williams Capital Group.  The company is allocating 4.5 million shares as the overallotment option.

As a reminder, Groupon is going to have a dual-class structure of A-shares and B-shares.  There are literally too many things for us to like here.  There has been insider selling, there has been massive amounts of venture capital that will be an overhang for ownership, the dual class structure hurts shareholders, the company is losing money, it is burning cash far too fast, and there are literally zero barriers to entry from competitors.  Lastly, Groupon almost has to come public because it now needs the capital.

The best reference we have seen this week on the Groupon IPO is that the Groupon IPO is its own Groupon… half off.

The IPO roadshow is set to begin next week and that implies that the stock will come public the first week of November, assuming market conditions allow.

JON C. OGG