Back to News
Activism

Activist Investing Today: Columbia’s Coffee on WeWork, Softbank and IPO Ratchets

|
Published: February 5th, 2020
Columbia Law School professor John Coffee talks about why investors can be harmed by essentially secret deals struck between corporations going public and mutual funds.

Retail investors are being harmed by essentially secret IPO protection deals still-private companies are reaching with mutual funds.

At least that’s the view of Columbia Law School professor John Coffee, who spoke with The Deal for its Activist Investing Today podcast about so-called IPO ratchets — contracts some mutual funds are receiving entitling them to additional shares in the event an initial public offering falls below the valuation reflected in the final private equity round.

In a wide-ranging conversation, Coffee explained that public investors can suffer dilution while the IPO itself is at risk of becoming overpriced. He argued adequate disclosure of the details of these ratchets could discourage their use.

On the podcast, Coffee offered shocking details of what a particular ratchet would have given Softbank Group Corp. had WeWork Cos. debuted earlier this year. He also argued WeWork share ownership and voting structure produced a particularly egregious example of why it is dangerous to give a founder, in this case ex-CEO Adam Neumann, too much power.

“This is the most extreme illustration of what can happen when you lock up control in this fashion,” Coffee said.

Congress or the Securities and Exchange Commission, however, won’t ban these kinds of dual-class share structures giving founders control anytime soon, Coffee said.

Here’s the podcast:

More podcasts from The Deal are available on iTunesSpotify, and SoundCloud and on TheDeal.com.

More From Activism

Activism

Activist Investing Today: Privet’s Rosenzweig on Synalloy, Covid-19

By Ronald Orol
|
Published: March 30th, 2020
The partner at the event-driven and value-oriented insurgent fund explains why he is plodding ahead with a change-of-control director contest at a metals and specialty company even though he is 'cognizant' of the coronavirus' effects on the world.
Activism

Activist Investing Today: Coast's Rasteh on FirstGroup, Covid-19

By Ronald Orol
|
Published: March 23rd, 2020
The founder of the New York-based activist fund explains why he's sticking with his investment and campaign at transport and school bus company FirstGroup — one of the fund's largest positions — even as its share price gets battered.
Activism

Activist Investing Today: V&E's Elbaum on Covid-19 vs. 2008

By Ronald Orol
|
Published: March 13th, 2020
The co-head of the shareholder activism practice at Vinson & Elkins explains what the 2008 financial crisis can teach us about how activists might react and perform during the coronavirus outbreak.