initial public offerings (IPOs) trading on American exchanges

Sunday, December 4, 2011

T. Rowe Price Facing a Loss on its $72M Investment in Zynga

T. Rowe Price is looking at a paper loss on its $72 million investment in Zynga, according to the Wall Street Journal.

The Baltimore-based investment firm, along with Morgan Stanley Investment Management and Fidelity Investments, contributed to a $490 million capital raise in February, buying preferred shares at about $14 per share.

The problem?

"Zynga said Friday that it may price its IPO at $8.50 to $10 a share, which values the company at up to about $7 billion based on its 699.4 million shares outstanding. The valuation would be about $8.9 billion counting outstanding options and warrants .... Zynga's IPO plans reflect a valuation below the levels expected earlier this year. At mid-year, Zynga's IPO was expected to reflect a $20 billion valuation, people familiar with the matter said then. In August, Zynga itself obtained an outside valuation of $14 billion, its disclosure says," said the Journal.

Business Insider CEO and Editor-In Chief Henry Blodget was more blunt in his assessment.

"The idea, presumably, was that Zynga would go public and trade at something north of $20 a share, giving the late-stage players a nice profit. But Zynga's growth has since flatlined .... Zynga's stock will probably price above [the range of $8.50 to $10 a share] (unless investors notice that the company has stopped growing), but $14 looks like a stretch. And that means that T. Rowe, Fido, et al, will likely be forced to convert their preferred stock into much-less-valuable common stock at what will likely be a much lower price than they paid for back in February. Ah, well. Back to making money the old-fashioned way."

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