Dutch auction
(d˘uch ôk’shen):
n. A procedure for buying and selling securities named after a system used for flower
auctions in Holland
Recent examples: Online news-site Salon did it, so did Internet-bookseller Alibris and gifts-retailer Overstock.com, but no company caused as much commotion with its Dutch-auction method of going public than Google.
Here’s how it works: Say a company wants to allocate 200 million shares and receives 500 million bids. When the auction closes, the highest offers adding up to 200 million shares win their bidders a chance to purchase. The lowest bid among the top 200 million becomes the price. In the case of everybody’s favourite search engine, shareholders settled on $85 per share.
Dutch auctions can also work in reverse. This July international energy company PetroKazakhstan Inc., based in Calgary, announced the final results of its Dutch auction. To increase its earnings per share, the company decided to buy back four million of them. PetroKazakhstan’s vice-president of investor relations Ihor Wasylkiw says the company chose Dutch auction over other payout mechanisms to ensure greater accessibility to all its shareholders. The final repurchase price was $40 per share.
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