THE WELCOME GIVEN to HMV - jointly sold by record company EMI and private-equity firm Advent - when it was floated on the London Stock Exchange in late April was muted to say the least. The £537 million issue was priced at 192p from a range of 220p to 190p yet still traded down in the after market, falling 7.6% on the first day of trading to 169p on May 27.
HMV's uninspiring performance helped set a dangerous precedent. It fuelled the belief that new issues trade down in current market conditions, so creating a strong disincentive to buy in at the IPO stage. What's the point, reason investors, when you can pick up the shares much more cheaply a couple of weeks after the launch?
It didn't much help HMV's cause that just days before it priced, the Copenhagen Stock Exchange IPO of LM Glasfiber had to be pulled.