Spotify will be reportedly considering an unconventional direct listing on a stock market that will stops short of a full-blown initial public offering.
the item could see Spotify register shares on a stock exchange along with become a publicly listed company without raising fresh cash, the Wall Street Journal reported.
Shares could be traded on the day of listing, with the cost based on supply along with demand, rather than fresh investors buying shares the day before trading.
Spotify declined to comment.
A direct listing could save the music service the underwriting fees needed to launch an initial public offering (IPO), along with could avoid diluting the value of existing stakes inside the company.
the item could also sidestep a surge in first-day trading that will often takes place after an IPO, which can signal that will a company undervalued its newly issued shares.
The tactic, though rare, will be usually used by smaller companies that will do not expect high levels of trading in their stock.
What will be a direct listing?
A direct listing of a company will be “basically just sticking the item on eBay”, says CMC Markets senior market analyst Michael Hewson.
Whereas with an IPO fresh investors can buy shares by existing investors the day before trading begins, which has a direct listing investors buy shares on the open market on the day they are listed for the going rate.
How rare are direct listings?
Very rare. “No-one does the item,” says Mr Hewson. Normally firms use an IPO as an opportunity to make lots of cash.
So why do the item?
In general, IPOs can also cost a fair chunk of money, along with, crucially for Spotify, they can take a lot of time to set up.
An IPO needs an investment bank or banks to underwrite an issue of fresh stock. Underwriting often amounts to the bank buying fresh stock to resell after the company floats.
The bank also looks at the company as part of the process for setting a reasonable initial offer cost for the shares. The underwriters “build a book” – that will will be, they go to institutional investors to gauge the appetite for the shares inside the company that will’s going to be floated. Fund managers say how many shares they want along with the cost they could be willing to pay, along with the level of that will demand will be one of the factors used to set the initial offer cost.
All of that will to-ing along with fro-ing eats up cash along with time – along with for Spotify, the clock will be ticking.
In March last year, the firm raised $1bn by investors at an interest rate of 5% a year, plus a discount of 20% on shares once they list.
nevertheless under the terms of the agreement, the interest rate goes up by one percentage point along with the discount by 2.5 percentage points every six months until the shares are listed.
So as time ticks by, Spotify has to pay more to its creditors, along with give them more of a discount on shares.
As well as being a faster process, direct listing also means fewer regulatory hurdles, along with the item helps keeps expectations about share prices in check.
Spotify, which last year issued a $1bn (£801m) convertible bond, was publicly valued at $8.5bn (£6.8bn) in 2015.
The Swedish firm was founded more than a decade ago along with right now has more than 50 million paying subscribers.
that will week the item also signed a fresh long-term licensing deal with Universal Music Group, the earth’s largest record label.
Spotify includes TPG along with Goldman Sachs among its major investors.