Amid the growing likelihood of an impending initial public offering (IPO) for Nine Entertainment Co, fund managers are arguing that Nine's hedge fund owners should be made to hold on to Nine stock after the float, according to the Australian Financial Review.
The fund managers argue that in cases where hedge funds have bought a company to lead a turn-around with an eye towards returning the company to public markets, those funds should be forced to maintain some degree of ownership beyond the float to help ensure pre-IPO decisions are in the company's best interests, as well as those of future shareholders.
“We're believes in having sellers co-own these things,” BT Investment Management head of equities strategy Crispin Murray told the AFR.
“There's obviously a lot of incentives for the sellers to create as optimistic an outlook as possible for the business being sold, and where these IPOs haven't worked is because these numbers have not come through and they've squeezed everything they can to inflate profitability.”
Fund managers pointed to the float of retailer Myer Group in 2009, where private equity owners TPG and Blum Capital did not retain a stake beyond the float.
Myer shares were priced at $4.10 for the IPO, but fell to $3.88 on the first day of trading and stand at $2.84 currently.