Question

Assume UBER makes 2,000,000 shares available to investors through a Dutch Auction IPO. The following orders have been listed below. What is the IPO price? How many shares does each investor get?

Investors	Bid Amount ($)	Bid Shares
Ahlexas	125,000	5,000
Bob	1,500	20,000
Chris	900	500,000
Dominic	750	750,000
Elvira	600	600,000
Frank	500	400,000
Gary	50	950,000

 What is the IPO price?

 How many shares does each investor get?

 How much money does UBER get?

Answer 1

Dutch Auction IPO :

In Dutch Auction Price of the IPO is set after considering all the bids and highest price is determine at which all the available quanitity or Issue size can be sold .

In this type of auction, investors place a bid for the amount they are willing to buy in terms of quantity and price .

In the given question total offering = 20,00,000 shares.

Last successful bid at which all the quantity will be sold is $ 500.

Book Building Issue helps in Price discovery from the market ,

Floor Price = Minimum amount

Cap Price = Maximum amount

Offer Price is decided , cut off is 500

Answer to What is IPO Price :

Investors	Bid amount ($)	Bid shares
Ahlexas	125000	5000
Bob	1500	20000
Chris	900	500000
Dominic	750	750000
Elvira	600	600000
Frank	500	400000
Gary	50	950000

We need to check at what bid Rate we are getting quantity of 20,00,000 shares because No. of shares available to investors is 20,00,000 shares and we have received bids quantity for 32,25,000 shares at different bis prices.

We can see that that if we consider bids of Ahlexas, Bob, Chris, Dominic & Elvira we get total bids quantity at 18,75,000 shares so, we need more 1,25,000 shares in order to company the Issue Size of 20,00,000 shares .

Therefore, we will be giving 1,25,000 shares to Frank .

Now we need to decide the IPO Price / Offer Price , which will bw $ 500 because as we know IPO Price could be only one price and if we set above 500 then we would be sold or issuing only 18,75,000 shares and that too only at issue price of $ 600/- because BID RATE by Elvira is 600 .

So, in order to sold the 20,00,000 shares the LAST SUCCESSFUL BID is $ 500.

Therefore, IPO PRICE is $ 500.

Note : Remaining 2,75,000 shares bidded by Frank will be rejected , only 1,25,000 shares will b approved out of 4,00,000 shares bidded and offered to Frank in the IPO.

How Many Shares does each investor get

Following table shows us how many shares each investor get in the Dutch Auction IPO Process :

Ahlexas	5000
Bob	20000
Chris	500000
Dominic	750000
Elvira	600000
Frank	125000
Total	20,00,000

So, All the investor will get their bid shares except :

FRANK who will get only 1,25,000 shares

and Gary who will not get even a single share because he has bid for $ 50 which is low than offer price / Issue price of $ 500.

NOTE : All the investors will get shares at the IPO / Issue/ Offer price irrespective of the fact that the price bid by them is higher.

How much money does UBER get ?

UBER will get = Issue Price * No. of shares offered

= 500 * 20,00,000

= 1,00,00,00,000

= $ 100 crores.