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Red Hat Software Businesses

Red Hat IPO Details 97

Posted by CmdrTaco from the stuff-to-think-about dept.
Wil Mahan writes "Salon has a short article with some interesting details about the upcoming Red Hat IPO. It gives a brief overview of the S-1 filing, including potential "risk factors", such as the threat of being squashed by Microsoft. The full text of the filing is also available (warning: 1.5 MB of legalese). "
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Red Hat IPO Details More

Red Hat IPO Details

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  • It's about time ...

    Can anybody get me in on the friends and family thing ? I'll take a few hundred shares.

    --Aaron
  • But minimum investment is US$5,000,000!

  • As for GPL, it is a joke. It is non-enforceable. Imagine if I incorporate some GNU code in one of my projects and sell the binary. Who is going to catch me? Nobody.

    Your employee that will see it, for example.

  • I was under the impression that some public stock is indeed voting stock. In major companies such as Exxon or Amoco which are almost 100% owned by the stockholders, people who own 5% of the stock pretty much control the company (since most of the rest of the stock is spread out among people who each own less than 0.5% of the stock). Even those who own, say, 100 shares, can vote them, however. When certain critical (and closely contested) votes come up, people on each side will mail the small stockholders (those who own less than 1% of the shares) for permission to vote their shares as part of their bloc.
  • Sure, they could. But so what? In a sense, Red Hat Linux is not owned by Red Hat, it's owned by the GPL.

    The GPL is inseparable from Linux, and no matter what happens to Red Hat the company, Red Hat Linux will remain free.

  • Posted by d106ene5:

    Bottom line is, the balance sheet doesn't mean too much these days (for the present anyway). If that were the case, do you think Amazon, EBay and Yahoo would be worth such staggering values?
  • Posted by d106ene5:

    They never claimed to be a manufacturer of anything.
  • Posted by mrjp:

    If "Microsoft friendly" investors decide to buy up large amounts of shares of Red Hat Inc., then it would make good sense to buy them when they first come out. The price of the shares will surely rise. Microsoft can not "Buy" Red Hat.
  • Posted by mrjp:

    Red Hat, Inc. seems like a great oppurtunity to me. They are the authority on Linux Development, besides Linus Trovalds. Like Yahoo! that has rocketed to unwaivering heights, I believe this company will also be able to benefit from the spin-off technologies of Linux. The future is always uncertain for companies that have the purest of visions, and go against the megaloths like Microsoft. In the end though, I believe that the customer satisfaction will prevail. Who do you think the customer will like better? Microsoft Windows or Linux? It is that simple.
  • Unfortunately this will never happen. You can't get in on an IPO of this magnitude w/out seriously huge amounts of cash (i think someone above mentioned $5,000,000 as an entry point).

    So your "small investors who trade over the Web" aren't likely to get a chance to get in on the IPO.

    By the time the "rest of us" get a shot at buying this stock, it'll be so sky high, there will be no way to afford it ...

    I'll probably try anyway though :-)

  • IF? (Score:1)

    by Suydam ( 881 )
    what do you mean by "If RedHat goes public"?
    Isn't this a done deal?
    Maybe I'm confused (this is highly possible).
  • Think about it, if Yahoo, a company that really has no product at all, can hit the $200 mark, why not RedHat. Heres why:

    1) They've already had pretty good success selling a product they also give away.
    2) They are synonymous with Linux and Linux is the current darling of the trade press.
    3) People are looking for another Yahoo, Amazon or Ebay and will jump on it.
    4) The Linux community will buy it because it gives us a real chance to own a piece of the pie and put our money behind something we believe in.
    5) The stock will get /.ed on the IPO and quadruple in price :)
  • "Lets see here a company that has lost money in 3 of the last 5 years"

    The funny thing is that this is actually a strength for an Internet company! It has *made* money in 2 of the last 5 years, compared to most of these companies which haven't seen a dime of profit yet (and don't predict any in the near future either). What a crazy world.
  • The Red Hat folks have always stated that their business model was non-traditional. I'm sure their IPO will be as well. This is good, IMHO, 'cause it'll introduce a different way of looking at publicly traded companies. Sort of taking the OSS model to Wall Strett :). I hope they make tons of money.
  • Anybody have an idea of when Redhat will actually go public or how long IPO applications generally take to process? Are we talking on the order of days, weeks, or months here? I'd really hate to miss this.
  • It looks like it's on the order of a few months. I found a page which explains the IPO process [e-analytics.com] and it says that there is a "cool down" period between filing and the actual offering which is referred to as the "effective date". It also says that the typical cool down period used to be 20 days but now it is much longer. I searched the Redhat application for "effective date" but nothing really made sense - I guess this is something which will be set later.
  • Redhat isn't putting all of they're stock up for sale just a small portion, so there is no way for microsoft to buy that much even if they were incline to.

    Regarding the GPL, Redhat does not choose the license under which Linux is distributed, Linus and the other developers chose that a long time ago. If Redhat wants to distribute any code based on Linux they must use the license Linux comes with - the GPL.
  • It lists in the "RED HAT LINUX AND RELATED SOFTWARE" section a "Graphical development libraries" GTX, while that should be GTK.

  • Not so strange... it's in the rules.
  • Although this sounds like a great idea, I think for the amount of $$ they are planning to raise it
    would be crazy to hand this over to computer model that has very little experience.

    Also, I'm sure they thought twice about handing over their company to a closed source bidding
    program. Would that be their style?

    If you are raising $10 mil and you are unknown, that might be ok. If you are raising $100 mil...

    OpenIPO isn't that different from just a regular online broker. The only magic they have is
    that they allow smaller investors to get a random crack at IPO shares (like playing the lottery).

    The small guys still get screwed. You can't see the Road Show presentation unless you have $1 mil.
    You need to have lots of money available to get shares because you need to bid high for a large
    number of shares to increase your odds to a reasonable levels.

    For a hot IPO like Red Hat, I image that they would be 20x over subscribed. That means if you
    bid for 2000 shares at say $30/share, you would have pretty good odds at getting 100 shares and
    paying $20/share. This means you have to be able to afford $60,000 to get $2,000 worth of stock.
    If you bid less than that, you probably will have better luck in the lottery.
  • Although it is true that between filing and the effective date is usually over 1 month, under
    current SEC rules it is possible to fast-track and do things in weeks if everything is clean.

    The old "cool down" period was part of a regulation to protect the price of the IPO from
    manipulation, but nowdays if you follow the rules, things can happen much faster.

    The red-herring (which is usually similar to the filing) doesn't have a share price or an effective
    date because when you print it, it has to be true (so they don't until they are 100% sure which is
    usually the day before the effective date). They just have fill-in the blank spots for this info.

    There is no way to know for sure the effective date until it happens (or you are an insider).
    However, many companies schedule their road show the week before the effective date.
    The investor services that list upcoming IPOs key off the fact that a company has scheduled a
    road show to tell everyone that an IPO is coming the following week.

    They can pretty much pull the trigger at any time... keep your eyes open

  • IPO 101 (Score:1)

    by slew ( 2918 )
    The non-bumpy road version...

    Start a company, decide you want to take it public. The first time you sell shares to the
    public is called an Initial Public Offering (IPO).

    Hire a experienced CFO (chief financial officer)to select an investment banker to lead your
    underwriting syndicate. The underwriter(s) are securities brokers that help you take your
    company public.

    In exchange for money (usually shares in the company) they do the paper work and introduce
    you to institutional investors and pay for the road show. They also can serve as "market makers"
    for your stock after you go public. A "market maker" owns enough stock to facilitate trades.
    (Stocks are trades, so if there is no-one to trade with, the stock is not very liquid).

    The reason you want institutional investors (mutual funds, banks, pension funds, etc) rather
    than small investors is for several reasons. Because your offering is required to be fair,
    you want your IPO all at the same time so that things don't change (price, market, company info).
    Also, institutional investors give the company feedback on price support (to select a stable price). Also institutional investors will hold the stock for a while which prevents the shares from being too volatile.

    Because of this institutional investor focus, the only way to get in on this is have a good account
    with a brokerage that is involved with the IPO. Usually brokerages only allow their best customers
    access to IPO shares.

    Investment banker and CFO will tell you how screwed up your books are.

    Fix them. If they are really screwed up, this could take a while. The ownership, debt, stake
    holders, assets, contracts, etc, etc, need to be clear. In a small company this can be a mess.

    You negociate the lock-up period for officers and employees (the lock-up period is how long
    after the IPO that you aren't allowed to trade in your own stock), this is usually 6 months.
    For key employees with lots of shares, some stock could be locked up as long as 2 years.

    The executive management team along with the Investment bankers will change your biz plan.
    (your plan needs to be investor friendly)

    You usually talk to a few other investment bankers about your biz plan to clean it up.

    You write a S-1/Red herring which will become a prospectus which says what you're about,
    who owns the company and what the all the risks are. You can't add to this later w/o refiling so
    you have to get this right. Ommitions are considered lies so you put the kitchen sink into this.
    (BTW, it is called a red herring because all the red colored warning bars and text)

    You file this with the SEC, at this point you are in a quiet period and can't say anything about
    your company unless it is in your filing.

    After some informal shopping around the red herring, you either decided to fix it or go ahead.
    This is the "cooling down" period.

    You select an pricing range.

    Schedule a road show with institutional investors to formally present your red herring. You say
    exactly the same thing to everyone (it's the law).

    Since you want diversified investors, you generally do New York, Chicago, Denver, Dallas,
    San Francisco, Los Angeles, all in 1 day (that's why they call it a road show) and a few
    conference calls overseas to boot.

    Since you can't offer to sell and they can't buy, you get "subscriptions" which indicate interest
    in buying. (Usually IPOs are oversubscribed)

    You select the actual price.

    You pull the trigger and go public. Then the subscribers are allowed to buy (they can always
    back out). The amount of stock is usually allocated because of over-subscription.
    For instance if somebody subscribes for 100,000 shares, they may only get to buy
    10,000 if it is 10x over-subscribed.

    From road show to IPO is usually less than 2 days to prevent the possibility of things changing
    when you talk to two different people. This is the reason for the roadshow and why it is
    impossible for anyone, except good broker customers to get IPO shares.

    SEC rules require everyone to be qualified (IPOs are considered risky) and that everyone have the
    same info. If you only talk to qualified investors and talk to everyone in the same day
    that you sell the shares, this satisfies the requirement.

    Now except for the lock-up, the stock is free game for everyone.

    In the bumpy road version, repeat steps as often as necessary. Sometimes you can't even hire
    an investment banker or a CFO. This could be considered a bad sign :)

    It goes w/o saying if you want to take your company public, you'd better start planning
    on day 1.

  • Re:Ok, how does this work??? (Score:3)

    by slew ( 2918 ) on Wednesday June 09, 1999 @03:48PM (#1857965)
    For big guys, IPO (initial public offering) shares are sold by this arcane process called
    subscription. For small guys like us, an IPO isn't any different than any other stock offering.

    Just get a stock broker and put in an order to by a certain number of shares at a certain price.

    Unfortunately, for an IPO there isn't a price history until it the IPO happens (remember the I
    is for initial). There is a range usually given in the filing, but these are just guidelines
    and can be changed at any time (and usually up and at midnight before a hot IPO).

    If you are daring, just pick a price above the range and put in an order and hope for the best.
    If your bid is too low, no shares are available to match what people are asking, and you get nothing.
    What you shouldn't do is put in a market price bid for an IPO. You would be pretty much assured
    of paying the highest asking price and shortly after an IPO, the price usually drops. :-(

    Stock transactions are trades, so a buy order has to be matched with a sell order. To facilitate
    trading, stocks are usually handled by one or more "market makers" (usually the stock underwriter for
    IPOs). The "market makers" usually own enough shares to put in sell orders to match random buys
    and to net out transactions at the market price. This gives them some power to manipulate the price.

    In an IPO, the sells come from either the underwriter, the company's investors, or the
    subscription shares which you probably won't get because who would sell them to you at such a
    low price :) (although it is possible)

    The buy orders come from the gullible speculators trying to get IPO shares. To increase their odds
    of getting shares, people put in high price/share limits. This of course bumps up the stock price
    since the market makers look at the orders and of course pick the highest prices ;-)

    Usually the day of a hot IPO, the people with shares hold on to them (don't sell) until they see
    a few orders. The market maker can put in a few buy/sell orders to test the waters and then things
    usually get going (and ususally up). There's a small chance if you put in an order during the
    testing stage, the it will get traded but don't count on it! (everyone else has the same idea)

    Unless you know what you are doing, or are just looking for token shares, I wouldn't suggest
    planning on investing in an IPO.

  • Admitedly I know little about the stock market and etc... but Whats to keep Microsoft from Buying 50.1 percent of the stock? would this give Microsoft control of the company? Could they force Red Hat to NOT use the GPL?

  • Another S-1 summary on LWN (Score:3)

    by Corbet ( 5379 ) on Wednesday June 09, 1999 @11:25AM (#1857967) Homepage
    We did a summary of our own [lwn.net] of Red Hat's IPO filing for the Linux Weekly News. We looked at some different things than Salon did; check it out.

    jon

  • I really wish that they had used Open IPO [openipo.com] for their IPO> It would have fit in very nicely with the nature of Linux. Ah well. Maybe I'll buy some eventually.

    You may also be interested to see what folks have to say about RHAT over at techstocks.com, here [techstocks.com] and here [techstocks.com]. (You might need to register to see these, not sure...)

  • Hey, that's not too bad... if they've hired an outside company to do Y2K testing on 5.2 and 6.0, it sounds to me like the open source community is getting yet another benefit from Red Hat - third party verification of Y2K readiness of TONS of applications. Not that I expect them to find many problems.

    I bet that outside company loves this particular job, too - "you mean we get ALL the source code to EVERYTHING? Whoohoo!" :-)
  • ...is that I've just sent off my account deposit to E*trade this morning.

    I've been meaning to do this eventually to self-manage mutuals, maybe buy some small lots of stock, etc. This is just the thing that tipped those proverbial scales.

    I think of it partly as 'vanity stock' - even if I have to wait until it opens to public trading I will buy some stock just 'cuz.

    Of note to Canadians - don't fall for the E*trade Canada line - they're not the same and they don't do IPO or commodities. I nearly went the wrong way there.

  • So much for that idea. IPO open to US Residents only. Mutter mutter.

  • Not trying to sound ignorant or anything, but what is this "IPO" thingy? And the talk about "S-1"?

    I understand it has something to do with stocks, but I don't know anything about how this stuff works over there. If someone could just expand the acronyms for me it might help...

  • Go here [lwn.net]. A nice summary; well, I assume so, since, like most, I don't intend to read the whole 500 page filing :-)

    --
  • Anyone know when the shares will be available for trade? I think it would be worth a try to get hold of some.
  • This is all very interesting, but could Redhat be exposing themselves. Once the shares are out there, they are available for purchase from anyone who's a) interested, and b) has the money. Now what if (for the sake of argument) Microsoft, who we all know has a veritable mountain of cash at their disposal, decided to cash in on the new bounty. How would the Linux world react to Redhat if they new that they were part owned by Microsoft? Even worse, what if at some point in the future Microsoft decided it wanted a controlling interest in Redhat and managed to buy up the bulk of the shares. Redhat would effectively become a Microsoft owned company and would Microsoft not then have cart blanch to appoint their own managers and control the future direction of Redhat Linux?

    Now I'll be the first to admit I'm not very knowledgable when it comes down to stocks and shares, but this hyperthetical scenario is possible. Isn't it?

    Macka

  • From the article:

    ...the license that requires the Linux source code to be kept freely available to the general public has never been tested in court.

    Is this true? (I'm sure some of you out there know the answer for sure, and I don't mean just ESR and RMS!)

    If so, one way to look at it would be to say that it's completely unenforceable, to the extent to which violations aren't even followed up in court.

    Another interpretation would be to say that it's one of the most perfectly enforced licenses in existence--so daunting that nobody's ever really tried to violate it. :)

    Better than the law of gravity, that...


    -W-
  • Red Hat is not going to sell its own stock!! When executives do this, it means that they do not value the shit they are holding on to, and are scared of losing. But even this is rare. I know Bob Young is going to hold on to his stock. Linux is taking off. Just you wait....
  • Public stock isnt voting stock (voting stock is where you have some responcibilities in the company). Public stock is used just to raise money for a company, then the company pays out dividends on each stock so if the company makes money you make money for investing in them. If I bought all the public stock a company offered I still wouldn't own them because it's a portion (usually under 20% of the company) so no one can buy them out without buying out the owners.
  • That's so strange, that Red Hat would acknowledge their over-commercialization and Linux community backlash as a risk factor. It's true and all, but still strange that a company would list that on a filing!
  • Working for a company that recently filed an S1 themselves, I can tell you with complete seriousness that EVERY possible problem needs to be listed, no matter how ridiculous, if you don't want to end up with lawsuits two years later when you miss earnings estimates.
  • Another thing to remember is that Etrade is doing part of the release too (I guess since Goldman Sachs took them public; don't know why). Their rule is that if you've made 75 or more trades per year, you're "considered" for an IPO. Though with one like Red Hat, it might take a bit more.
  • Yes it would be fantastic!!! And it has already been done before!

    Ben & Jerry's did something similar to this when they took their company public. Each family in Connecticut had the opportunity to get in on the IPO for a minimum investment in the low hundreds. The story is detailed in their book "Ben & Jerry's Double-Dip : How to Run a Values-Led Business and Make Money, Too"

    So it is possible!




  • I expect lots of price swing in the first Publicly traded Linux distribution.

    Seems like a Good chance to make/loose money!
  • The one thing your forgeting about the small investors strategy is FAITH. Most small investors don't jump on an IPO unless they have a great amount of faith in a company and don't mind paying the initial price for a stock. Sure its not the best investment strategy and any financial consultant worth a grain of salt will not let you invest this way, but then there is the magic of on-line trading isn't there.

    Red Hats IPO like so many others is unpredictable so it may be like Geocities back last October. It ran up, the market took a nose dive and you could pick up the shares cheap, then it started to rise and Yahoo bought them so even if you did pick them up at the IPO you made money if you didn't get discouraged. Then again it could be like Ebays and you'll never see anything near the IPO again.

    The best advice I can give is if you really really want a specific number of shares buy maybe half or less on the IPO that way you have some, if it acts like ebay, then if it turns down go ahead and pick up the remaining shares a price you think is decent.

    Stocks are a gamble, buy what you know, buy what you don't know, just make sure you diversify your holdings so you don't get burned in the long run.

  • ...will go for this one in droves. Lets see here a company that has lost money in 3 of the last 5 years, has a product that anyone can copy and sell cheaper than them, and wants to take on the figurative 900 pound gorilla of the industry. Yep, put the kids college money and the retirement fund in there.. ;)
  • Ok, so everyone's happy to analize this thing, but what steps do we need to take to secure part of this IPO? I have no idea...
  • Fortunately, the poor have gotten richer also. That's both why there are so many members of the middle class, and why your great-grandfather's log cabin is not full of his sixteen descendants. Wealth is created, it is not limited.
  • Yes. The fact that they recognize it as a legit risk factor and then choose to disclose it on a SEC document shows that it is a _real_ issue in the halls of RedHat's offices. This is a Good Thing.


  • Lest we forget the recent tendency of IPO's gaining public appeal quickly via "small ideas" like e*Trade, et. al., allow me to paraphrase the words I read in a Newsweek article a couple of weeks ago:

    "Investors don't care about the economic risks involved in giving away free software -- they just want to make a fast profit ..."

    Six weeks from now we won't be concerned about Red Hat's IPO status -- because penny-rate investors won't, either ...
  • I wonder how many people will invest in Red Hat because they have a portal?

    --

  • It would be fantastic if the entire IPO was bought up by small investors who trade over the Web (as opposed to large investment bankers). Especially individual open source developers whose efforts go directly towards making the Redhat distribution better. It means that they now also have a genuine stake in the profitability of their work. And when you consider that the web serving technology (i.e., Apache) that they use to do those online stock transactions was also created by the very same open source community, it becomes all the more fitting.

    I see this as part of an emerging New World, in which the Little Guys, the individuals, can survive and profit without Big Business. Maybe I'm an idealist, but isn't that what the open source movement is all about? Spirit of demoracy and freedom, and all of that? Maybe I'm just on crack. :-)

  • Yes, but the thing you are forgetting is that with online trading, etc., Big Companies can be owned by Little People. This is part of the revolution (evolution?) that I am talking about.
  • Giving money to a company to help fight M$, priceless.

    Being on the winning side in the fight for World Domination, big bucks, no whammy's, STOP.
  • Excerpt from the above-linked article:

    Their plans for the web site include: personalizations ("my.redhat.com" - really), advertising and sponsorships, content subscriptions (things like "market reports" and support will be available - for a fee), e-commerce, and licensing of their content to other content providers.

    Oh my god, it's a PORTAL... ROFLMAO! Well I hope they'll make the site better, cuz IMHO it kind of sucks now...

    Frank Batten, Jr. holds 25.0% of current stocks. Who is this guy?
  • I can verify this. I called to the London-office of Goldman, Sachs & Co where they told me that you had to:

    A) Already have an account worth at least $5.000.000
    B) Preferably been a long time customer of Goldman, Sachs & Co
    C) The account must be 4 months old at least, but if it is only 4 months chances are still slim since older customers have a greater chance of "gettin' any"

    Now where did I put those $5.000.000??
  • The IPO is slated for Aug. 9, but that's subject to change *wildly* ... which is probably why they don't pubilsh an expected launch date.


    Typically they set a target week -- Aug. 9, in this case -- and tweak it depending on how things are going. In the interim, they're meeting with BIG investors to take orders for shares. If those meetings go badly, the IPO can be postponed or canceled.


    To get the exact day of the IPO, you have to bug the underwriting bank pretty much daily. Or... there are IPO news sites around the Web that report on expected launch dates.

  • >> You can buy Red Hat stock, theoretically this gives you a say in how the company is run (assuming their IPO is preferred voting shares)
    You are either very rich or very naive.

    I bet you're one of those people who votes too...
  • I'm falling for a troll here, but you are making the assumption that Microsoft acts rationally with respect to competition. History has shown they do not.

    Microsoft is the most paranoid company on the face of the earth, and whenever they see ANYTHING that even remotely in a million years on a distant planet in Alpha Centauri might threaten their domination of "every desk in every home" (Netscape, Java, DrDos, etc) they go in super defense mode - regardless of whether it is actually a threat or not.

    Paranoia is the #1 sign that something is very wrong in Redmond...
  • And we are a bunch of little chipmunks bating the bear as loud as we can with our collective high pitched little chipmunk voices. Same difference.

    To think that Microsoft is not going to rise to the bait is being very naive...
  • I would think that the risk of a community backlash would be obvious to anyone who regularly reads Slashdot comments. I'll bet RH would hate to "forget" that risk only to later be presented with pages of slashdot "backlash" example comments that predate the IPO.

  • Re:Wow (Score:1)

    by ejay ( 43992 )
    It's not strange at all to list that kind of info in an IPO
  • Public stock *can* be voting stock. There are two types of stock; Common Shares, and Prefered shares. Prefered shares are paid before Common shares, and the ammount of return is known in advance. Prefered shareholders also get first crack at the assets if the firm is dissolved, or goes belly up. But, prefered stock gives no voting rights. So, prefered stock is safe, but the value is fixed, and you have no say.

    Common stock is the stuff that fluctuates on the market. Without having read the whole document (too boring) I'd say that RH is issueing common stock, and the present owners are using their pre-emptive rights to maintain a controlling interest.
  • bloody yanks...
  • Redhat would effectively become a Microsoft owned company and would Microsoft not then have cart blanch to appoint their own managers and control the future direction of Redhat Linux?

    I don't see the problem here. IMO, RedHat is moving more towards profit and publicity every day. Although great for personal gain it might not be so good for the future of GPL. Corporations are only investing in RedHat so they can eventually buy it up. Widespread distribution (read: popularity) is not always good. ie: what happened to the bbs scene between 93-95 when all the kids got modems for christmas. err, nevermind.
  • Anyone interested in froming an investment club to participate in this IPO?

    If you are interested send email to

  • Initial Public Offer

    The first time a company sells stock, it's called an IPO.

    Chuck
  • Sorry about the poorly formatted HTML, I missed a quote.

    If others are interested in forming a club to participate in the IPO, please send email to invest@investmentclub.org [slashdot.org].

  • Not as long as the Justice Department is breathing down Microsoft's neck.

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