F1 » Williams flotation raises interesting questions


Legal expert Charles Braithwaite examines a couple of oddities thrown up by Williams F1's impending stock exchange flotation as the team prepares to sell off 27 per cent to investors.

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Googolplex

March 01, 2011 12:34 AM

As I suspected, Williams will now have increased compliance and administration costs but no new capital to meet that additional compliance burden. Hard to see how that will shore up the teams future!

Alan D - Unregistered

March 01, 2011 10:53 AM

I'm not sure I understand the second question about why issue no new shares. I wouldn't expect Williams to create new shares, no matter what the reasons for the IPO.

When creating a company, it is quite normal to divide it into more shares than you need. For example, if you have two founder shareholders, you might decide to create 1,000 shares of which you issue 100 to each partner and leave 800 unissued. The reason for this is that when you later want to bring in a new partner or do an IPO, you take the shares from the unissued stock and avoid yourself a ton of paperwork and legal stuff which would be needed to create new shares.

With Williams I have read that the shares are coming from the unissued stock, (which would bring new money into the company) but elsewhere read Patrick Head was selling some of his stock, (which wouldn't bring money in).

Rob - Unregistered

March 01, 2011 12:59 PM

If 1 share is £0.05 and 2,739,383 shares equal 27.39% of the business, therefore 100% of Williams is worth £500,069.92 Half a million pounds sterling, that can't be right???. What am I missing or have they put a decimal point in the wrong place?

((0.05*2739383)/27.39)*100

DontTalkShite

March 01, 2011 1:40 PM

I'm no expert, however the way I read it is selling existing shares means revenue goes to the existing share owners (Sir Frank and Patrick) however selling new shares (ie the company owns them.) means the revenue stays with the company, not a shareholder. Is that right?

Alan D - Unregistered

March 01, 2011 1:40 PM

Rob, you are misunderstanding the strange idea of the "nominal" value.

When Williams started up they had, say, half a million pounds worth of assets between them so they said each share in the company was nominally worth five pence and the number of shares each partner held depended on how much they had invested. However, people can sell their shares for whatever they like because the company is nowadays obviously worth a lot more than half a million. I don't know why accountants always persist with quoting the nominal value these days.

In a way its a bit like rare postage stamps. The nominal value of a Penny Black is one penny, and if you took an unused one back to the post office and asked for a refund they would give you one penny, but if you sold it to a collector it could be worth thousands.

Alan D - Unregistered

March 01, 2011 1:48 PM

DTS, normally yes, if Patrick Head is selling his share holding then the money goes to him, and if the company is selling unissued shares then it goes to the company. However, with IPOs, you often see the initial shareholders selling shares with a portion of the sale price being reinvested into the company, so that the shareholders can get some cash out of the deal, but the buyers see also some of their cash being invested. Otherwise it can be difficult to make the shares into an attractive proposition.

Alan D - Unregistered

March 02, 2011 4:53 PM

DTS, "Manipulation" makes it sound like you think it is somehow underhand. It isn't, and no there isn't a standard formula. Its just a case of working out what you think is going to work best.

If all of the money paid by the buyer went into the business then the shareholder obviously would not be willing to sell because he would just be giving away his share of the company. If the shareholder is taking all the money then the buyer might not think it worth his while investing in the company. You've got to find the deal where both the buyer and the seller are happy.

Remember, this only happens when you are restructuring the company and creating a broader share base. Normally, if you hold a share in, say, IBM, and sell that share to someone else, you get all the money and IBM sees none of it.

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