【The Economist】Why is Twitter’s IPO so unusual?(2013-9-17)

OL:http://www.economist.com/blogs/economist-explains/2013/09/economist-explains-6

TWITTER has built a business that lets people spray information around fast. But when it came to its initial public offering (IPO), the micro-blogging service sent out just one tweet on September 12th informing the world it had filed the required IPO papers confidentially with America’s Securities and Exchange Commission (SEC). Then there was silence. How has Twitter been able to keep its IPO filing under wraps? And what does this mean for investors? Companies are typically required to publish information about themselves immediately after they submit their initial IPO documents to the SEC. But Twitter has taken advantage of a provision in America’s Jumpstart Our Business Start-ups Act—or JOBS Act for short—that allows "emerging growth companies" to kick off the IPO process confidentially. They must publish the IPO data no later than three weeks before they embark on investor roadshows to tout shares. The act defines emerging growth firms as ones with less than $1 billion of annual revenue. By giving some companies the option of filing for an IPO in secret, the JOBS Act, which became law in April 2012, aims to encourage more flotations. According to the SEC, by the end of June 2013 roughly 250 companies in America had filed IPO documents confidentially. This approach appeals to Twitter for several reasons. The firm hopes that by keeping its financial performance under wraps for a while, and then heading swiftly to a listing, it can avoid the kind of hype that surrounded Facebook’s IPO in 2012. Twitter can also address any concerns the SEC has about its submission in private—though it must reveal its correspondence with the regulator when it finally publishes its IPO documents. It is hoping to avoid the fate of Groupon, which revealed details of its finances as soon as it filed for an IPO in 2011. Some of the firm's accounting policies were publicly questioned by the SEC, which unnerved investors. There are other advantages too. If it wants to, Twitter need only publish two years of audited financial statements rather than the typical three and it can leave out some details about executive pay that are usually required. An emerging growth company does not have to disclose it has filed to go public, though some like Twitter prefer to do so. Critics say it is a mistake to let prominent firms such as Twitter and Manchester United, an English football club that listed on the New York Stock Exchange last year, keep their filings secret for a while. This encourages wild speculation about their finances, distracting employees and muddying the market. The JOBS Act also lets emerging growth firms talk to big investors privately to gauge the appetite for their shares, a practice that is usually forbidden. That leaves small punters at a distinct disadvantage and explains calls to reduce the $1 billion revenue cut-off point for emerging growth firms. Last year one disgruntled investor suggested that the JOBS Act should be renamed the Jumpstart Our Bilking of Suckers Act.