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Porter going public via IPO


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Good post Mr. Bean. It looks like you made up the missed culture classes!! I don't know how close you are to your board room, but as you speak, they may looking at this deal with great interest. For pure investment purposes, it seems that Porter is going to surpass Westjet. All the numbers so far seem to indicate that. Compare the initial capital (Porter was the highest ever in Canada and second in NA only to Jetblue not by far), the initial IPO which dwarfs Westjet's IPO, the bankers endorsing the deal, the big names behind it, all seem to indicate Porter is going to do really well at the TSX. I've decided to buy into it, just not sure how much. Why else would all these big banks endorse it? What think you?

It's always fun when someone brings their cub scout handy dandy pen knife to a gun fight. :cool:

Big banks endorsing the Porter IPO?

I have news for you, my friend.

First of all, in spite of everything you think you know, this is not a bought deal.

Secondly, investment bankers will endorse anything that has the smell of a piece of an $8.4m fee attached to it. It has nothing to do with big banks backing anything. Banks, (read investment bankers, some of whom are friends of mine,) would promote baby seal pelts hand clubbed by neo nazi's if the fees were big enough and it bought them another M5 and a larger summer place at Jackson's Point.

By placing nine, (count 'em, nine!), banks in the consortium, they neuter nine analysts, including Ben C, the best analyst out there.

The analysts will be on a very tight rein. Investment bankers with visions of $250,000+ bonuses on the deal don’t take kindly to analysts down the food chain who call a spade a shovel and suggest that things may not be quite as tickety boo as they seem.

Solution? Invite the telephone book to the party and ensure there’s no one left of any consequence to poke holes in the deal.

Had Kavafian still been with Research Capital, I’ll guarantee Research Capital would have been in the consortium.

Why don't you enlighten us as to precisely what Porter has accomplished with all that paid-in capital four years ago?

Throughout the period, we were entertained with delightful stories of how profitable the venture was. There was no truth to any of it. The numbers in the prospectus prove it.

Do you know what the investment community dislikes more than companies that don’t produce any profits? Company management that have a history of embellishing their numbers. Remember Michel LeBlanc?

So, let’s review Porters fiscal accomplishments.

They reportedly started with $120m in paid in capital.

They incurred a net loss of $11,486,000 in the year ended Aug 31, 2007.

No numbers whatsoever were reported for the period Sept 1 2007 to December 31 2007. I'll guarantee that if they were even remotely good, they would have been included.

A net loss of $14,529,000 in the year ended Dec 31 2008.

A net loss of $4,609,000 in the year ended Dec 31 2009.

That’s a net loss of $30,624,000 and the haemorrhaging of at least $15,000,000 of shareholders equity.

What’s left? A fleet of leased and bank financed Q400’s, long term debt that costs $9.3 million a year to service and about $21m in cash, enough to carry on the operation for a couple more years at it’s current pace, assuming nothing changes in the marketplace.

I wouldn’t bet on that. Fuel costs will increase and so to will maintenance costs as the fleet goes off warranty.

And then there’s that monopoly at YTZ that will be coming to an end, bringing an end to the inflated, unsustainably high fare honeymoon in the marketplace.

I’m still waiting to see your analysis of Porter’s outlook and your scenario as to how Porter plans on generating enough earnings / growth to generate an EPS and multiple that can support a $5 share price on any type of sustained basis. I’m sure you’ve figured out that with a 15x multiple, Porter needs to earn a net profit of $10.7m to support even that modest number. Their best kick at the cat to date, in what is quite likely their best quarter, was $455,000.

If you think this is a sound track record, compare it to what the only other airline in Canada that has gone public over the past decade and is still around to talk about it, accomplished.

They started with about $27.5m of paid in capital. They started with older equipment that was not under any sort of warranty. They went eyeball to eyeball with two network carriers, Greyhound and the charter operators on, collectively, every route they flew. No cosy little monopolies for WestJet.

What did they produce with that $27.5m of paid-in capital?

Net earnings of $871,000 in year one, (even after the Sept ’96 debacle) and shareholders

Net earnings of $6,162,000 in 1997.

Net earnings of $6,517,000 in 1998.

Net earnings of $15,800,000 in 1999 with shareholders equity about $95 million at years end.

There’s no comparison, and don't even get me started on jeBlue's record.

I’m not saying people won’t invest in Porter. People invested in Roots and Jetsgo. If I thought their prognosis pointed to solid earnings and an EPS that supported a share price 10 to 15% above their IPO price, I’d throw some serious cash at the opportunity and I wouldn't be shy about suggesting that others do the same.

Alas, the math simply doesn’t support it and you have done nothing to point out any faults in the logic or math to make me change my mind.

Indeed, I think Porter is one of the most obvious short plays I've ever seen, and that's coming from someone who hates to short anything.

I certainly don’t want to see others throw their hard earned cash they can’t really afford at yet another airline stock play that will only disappoint.

But heck, it’s your money to throw away.

B)

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Mr. Bean, the reason that Porter is going to be successful and basically print its own money is its product. Third party independent sources (Ipsos-2009) put the satisfaction of its customers so high that seems untouchable by its potential competitors at the Island:

Porter: 93%

Westjet: 73%

Air Canada: 48%

JAZZ: 40%

Not to mention that Porter has already had competition as YYZ/YTZ are recognized as one common market by the Canadian legal system, which is why AC will not make way in courts as seen by its multiple defeats. In addition, TPA has already had the displeasure of working or being bullied by AC who almost killed their airport in comparison to Porter which has made very large investments there in 4 short years and made long term commitment. TPA will be very skeptical of AC's purity of motives.

Another factor in their favour is their low BELF of 49% which you say may increase due to increasing maintenance cost after expiry of warranty. However, that is going to be more than compensated by reduction of advertising as the company becomes better known. Right now just over 5 cents towards CASM is in advertising costs, that will surely decrease. Their airport costs which are about the same should also decrease given the fact that they have pretty much paid for everything at their base by themselves. They also fly the most fuel-efficient aircraft which seems to only smell fuel. It is telling enough that AC decided to order some after slagging the airplane in the beginning. Also, with the completion of their new terminal and their original order of planes, their revenue will grow exponentially. They are bringing unprecedented traffic to the Island airport and will make it such a success story that dwarfs Westjet's story. With such a solid product and know-how, there just seems to be so much potential for Porter to do as it pleases.

Aside from the numbers so far, one has to look at the potential too which bodes really well for this company and its equity promising to be a success story. With some opening new equity accounts just to be ready to buy Porter, it seems that their shares are going to sell like hot cakes. Your analysis is founded in your passion for Westjet as opposed to potentials which may also be why your estimation of their share prices is so low. Feel free to short them if you wish, however that may prove to be very "short"-sighted!

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Mr. Bean, the reason that Porter is going to be successful and basically print its own money is its product. Third party independent sources (Ipsos-2009) put the satisfaction of its customers so high that seems untouchable by its potential competitors at the Island:

Porter: 93%

Westjet: 73%

Air Canada: 48%

JAZZ: 40%

Not to mention that Porter has already had competition as YYZ/YTZ are recognized as one common market by the Canadian legal system, which is why AC will not make way in courts as seen by its multiple defeats. In addition, TPA has already had the displeasure of working or being bullied by AC who almost killed their airport in comparison to Porter which has made very large investments there in 4 short years and made long term commitment. TPA will be very skeptical of AC's purity of motives.

Another factor in their favour is their low BELF of 49% which you say may increase due to increasing maintenance cost after expiry of warranty. However, that is going to be more than compensated by reduction of advertising as the company becomes better known. Right now just over 5 cents towards CASM is in advertising costs, that will surely decrease. Their airport costs which are about the same should also decrease given the fact that they have pretty much paid for everything at their base by themselves. They also fly the most fuel-efficient aircraft which seems to only smell fuel. It is telling enough that AC decided to order some after slagging the airplane in the beginning. Also, with the completion of their new terminal and their original order of planes, their revenue will grow exponentially. They are bringing unprecedented traffic to the Island airport and will make it such a success story that dwarfs Westjet's story. With such a solid product and know-how, there just seems to be so much potential for Porter to do as it pleases.

Aside from the numbers so far, one has to look at the potential too which bodes really well for this company and its equity promising to be a success story. With some opening new equity accounts just to be ready to buy Porter, it seems that their shares are going to sell like hot cakes. Your analysis is founded in your passion for Westjet as opposed to potentials which may also be why your estimation of their share prices is so low. Feel free to short them if you wish, however that may prove to be very "short"-sighted!

No one is suggesting Porter doesn't have an excellent product. Wardair had a great product and so did Roots.

The business has to make money with the great product.

Porter has shown that it hasn't been able to do so and I can't see any evidence that this will change anytime soon.

I'm still waiting to see your math that shows a plausible scenario that results in Porter generating a net profit of $10.7m that justifies a $5 share price with a 15x multiple, or better yet, a $13.4m net profit that supports a $10 share price with the same multiple, over any length of time.

Wishing it will be so is a little different than showing how it will be done with hard data.

Thinking that YTZ will remain a cosy monopoly in perpetuity is nothing more than whistling past the graveyard. But then again, its no more absurd than LGA being handed over for exclusive use to AA, leaving everyone to fight over JFK and EWR. It's not going to happen.

As competition ramps up, I suspect you'll see the need for more advertising, not less.

However, if Porter got its Marketing, G&A, Sales and Distribution category down from 22.4% of costs to WJ's 18.4%, (assuming both companies definition include all the same cost categories - a dangerous assumption), maintenance moves to 5% of costs, fuel increases 5% and average fares drop $25, with loads up 5% points, it produces an annual operating loss of $12.2m and a net loss close to $20m.

That's not going to do much for the share price.

Any other big ideas?

When you are public, you have to lift your dress every three months and everyone gets to take a peak.

:cool:

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Guest pikachu
...the reason that Porter is going to be successful and basically print its own money is its product.

Oh dear. Do you have the former owner of harmony lined up as an investor?

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Mr. Bean, the reason that Porter is going to be successful and basically print its own money is its product. Third party independent sources (Ipsos-2009) put the satisfaction of its customers so high that seems untouchable by its potential competitors at the Island:

Porter: 93%

Westjet: 73%

Air Canada: 48%

JAZZ: 40%

Not to mention that Porter has already had competition as YYZ/YTZ are recognized as one common market by the Canadian legal system, which is why AC will not make way in courts as seen by its multiple defeats. In addition, TPA has already had the displeasure of working or being bullied by AC who almost killed their airport in comparison to Porter which has made very large investments there in 4 short years and made long term commitment. TPA will be very skeptical of AC's purity of motives.

Another factor in their favour is their low BELF of 49% which you say may increase due to increasing maintenance cost after expiry of warranty. However, that is going to be more than compensated by reduction of advertising as the company becomes better known. Right now just over 5 cents towards CASM is in advertising costs, that will surely decrease. Their airport costs which are about the same should also decrease given the fact that they have pretty much paid for everything at their base by themselves. They also fly the most fuel-efficient aircraft which seems to only smell fuel. It is telling enough that AC decided to order some after slagging the airplane in the beginning. Also, with the completion of their new terminal and their original order of planes, their revenue will grow exponentially. They are bringing unprecedented traffic to the Island airport and will make it such a success story that dwarfs Westjet's story. With such a solid product and know-how, there just seems to be so much potential for Porter to do as it pleases.

Aside from the numbers so far, one has to look at the potential too which bodes really well for this company and its equity promising to be a success story. With some opening new equity accounts just to be ready to buy Porter, it seems that their shares are going to sell like hot cakes. Your analysis is founded in your passion for Westjet as opposed to potentials which may also be why your estimation of their share prices is so low. Feel free to short them if you wish, however that may prove to be very "short"-sighted!

Now look who's drinking the kool-aid. :icon_jook: A fool and their money are soon parted. :006:

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Mr. Bean, you may be overestimating competition for Porter. For one thing, it already is competing directly with AC and JAZZ on some routes in the East and winning. Second, AC/JAZZ presence on the Island would actually be good for Porter and accentuate their differences in product, service and culture and cause more defection of elite and super elite flyers to Porter. Plus it reduces some of its costs for airport ops and strengthens its case for improvements to the airport including a fixed link, and RWY and TWY improvements.

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Mr. Bean, you may be overestimating competition for Porter. For one thing, it already is competing directly with AC and JAZZ on some routes in the East and winning. Second, AC/JAZZ presence on the Island would actually be good for Porter and accentuate their differences in product, service and culture and cause more defection of elite and super elite flyers to Porter. Plus it reduces some of its costs for airport ops and strengthens its case for improvements to the airport including a fixed link, and RWY and TWY improvements.

I'm still waiting for your scenario that has Porter generating the sorts of earning it's going to require to support any sort of sustained share price.

Porter reported it's "Maintenence, materials and supplies" as .7 of a cent per asm flown in 2009 and 3.06% of it's costs.

Horizon operates 40 Q400's and 18 CRJ700's with an average age of fleet under 6 years. Their Q1 2010 maintenence expense reported today represented 9.31% of costs in 1Q 2010, or 4.04 cents per asm, 5.6x higher than Porter's reported expense.

That's where Porter's maintenance numbers are headed, my friend. I didn't notice any hard disclosure on this issue in the Prospectus. Tsk tsk.

The only way you win in the airline business is on the bottomline.

With cumulative net losses of at least $30 million since launch, Porter has no bottomline.

B)

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...Porter generating the sorts of earning it's going to require to support any sort of sustained share price.

...

Since Porter has not indicated any sort of dividend that would be attached to earnings there is no connection between earnings and share price (unless of course one is just pumping the stock).

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Kick at the Can...

I lack Bean's insight but one could argue that Air Canada could buy Porter's operation, feed traffic would come from the AC network, the lost AC market share in the triangle would be regained and the Toronto Island access trial case can stop. Air Canada now gains access to the YTZ terminal, 20 dash-8-400, which can be redeployed as they see fit on better missions. The new owner can increase prices by a small margin(like any oligopoly would do). One would have to see if operating costs are lower at Porter then at Jazz but maybe keeping Porter intact would be a good idea. It could be a way to set up competition for feeder airlines in Canada and it would keep Jazz on it's toes as far as competition goes. The AC feed traffic should be enough to bring porter above it's brake even point.

What about a Westjet buy? If the airplanes are re-deployed, markets such as Timmins, Sudbury, NorthBay, could be added as destinations (I think Westjet tried Sudbury but pulled out). Maybe the smaller aircraft would allow them to make a profit in the smaller cities?

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The thing about Jazz is: It's not so much the price as the product. Competition is killer in the price department but there are few who can match Jazz's performance on safety and reliability.

Just sayin'...

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The thing about Jazz is: It's not so much the price as the product. Competition is killer in the price department but there are few who can match Jazz's performance on safety and reliability.

Just sayin'...

...now you'd better whack yourself on the noggin and repeat after me: Touch wood! ;)

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WAIT, WAIT, WAIT…..How the @*#$ is AC going to be able to afford buying anything …when they cant even afford their own pension payments, Jazz CPA, along with everything else they are attached or committed to as the major carrier in Canada. Air Canada is no longer the giant it used to be. This includes the corporation, ACPA, CAW etc. Lets not kid ourselves people. AC is no longer the power house, WestJet employees are no longer committed to drinking the cool aid and Porter is showing their weakness while managers and CEO’s are getting ready for the next kill.

Sorry that my English writing is not the best but I think it all comes out the same in the end. OK….time for a Guinness and scotch on the side. Bon soir my friends.

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WAIT, WAIT, WAIT…..How the @*#$ is AC going to be able to afford buying anything …when they cant even afford their own pension payments, Jazz CPA, along with everything else they are attached or committed to as the major carrier in Canada. Air Canada is no longer the giant it used to be. This includes the corporation, ACPA, CAW etc. Lets not kid ourselves people. AC is no longer the power house, WestJet employees are no longer committed to drinking the cool aid and Porter is showing their weakness while managers and CEO’s are getting ready for the next kill.

Sorry that my English writing is not the best but I think it all comes out the same in the end. OK….time for a Guinness and scotch on the side. Bon soir my friends.

Skyline, thanks for yet another one of your "AC is finished" posts.

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Mr. Bean, you may be overestimating competition for Porter. For one thing, it already is competing directly with AC and JAZZ on some routes in the East and winning. Second, AC/JAZZ presence on the Island would actually be good for Porter and accentuate their differences in product, service and culture and cause more defection of elite and super elite flyers to Porter. Plus it reduces some of its costs for airport ops and strengthens its case for improvements to the airport including a fixed link, and RWY and TWY improvements.

The overwhelming majority of Elite and Super Elite flyers are wracking up their miles across North America and/or around the world. So don't think they are going to give up their lounge, their concierge, their Executive Class upgrades, their free trips across the entire Star Alliance network, to fly in a Dash 8.

I don't know how you define winning, but since Porter isn't profitable, and since it doesn't have the largest market share on the corridors it serves, I think you're smoking the company crack pipe.

Here's a tip. Don't buy Porter shares. It's a Ponzi scheme so that the suckers who come in give the original investors a profit and allow them to escape before the carnage. You know it's a fake when Porter runs full page ads in the Saturday Star and Globe for the Mont Tremblant service. There isn't enough revenue in an irregular, seasonal flight to support that level of advertising. The advertising is meant for image purposes - to fake the suckers into believing the airline is capable of being profitable.

I'll know Porter is for real and not a Ponzi scheme when it actually kills one of its daily year-round services because then it will be showing that it can actually admit to the same failings as every other airline on the planet instead of acting as if every single thing it has ever done has turned into gold.

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The overwhelming majority of Elite and Super Elite flyers are wracking up their miles across North America and/or around the world. So don't think they are going to give up their lounge, their concierge, their Executive Class upgrades, their free trips across the entire Star Alliance network, to fly in a Dash 8.

I don't know how you define winning, but since Porter isn't profitable, and since it doesn't have the largest market share on the corridors it serves, I think you're smoking the company crack pipe.

Here's a tip. Don't buy Porter shares. It's a Ponzi scheme so that the suckers who come in give the original investors a profit and allow them to escape before the carnage. You know it's a fake when Porter runs full page ads in the Saturday Star and Globe for the Mont Tremblant service. There isn't enough revenue in an irregular, seasonal flight to support that level of advertising. The advertising is meant for image purposes - to fake the suckers into believing the airline is capable of being profitable.

I'll know Porter is for real and not a Ponzi scheme when it actually kills one of its daily year-round services because then it will be showing that it can actually admit to the same failings as every other airline on the planet instead of acting as if every single thing it has ever done has turned into gold.

:cool:

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Can anyone tell me what the 60% on cross border routes would refer to in reference to the conditions on some of the long term debt?

Beginning in the fiscal year ending December 31, 2010, the lender will require the Company to meet a debt

service coverage of 1.00x, increasing to 1.25x for fiscal year 2011 and 1.35x for fiscal year 2012 and beyond.

Debt service coverage is defined as EBITDA divided by the sum of current portion of long-term debt and

interest expense. The lender will also require that the aircraft and engine it finances be used at least 60% on

cross border routes and that at least 80% of their departures originate from or are destined to BBTCA.

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Can anyone tell me what the 60% on cross border routes would refer to in reference to the conditions on some of the long term debt?

An interesting one.

I do not get deep into the leasing agreements very often and it has always been the other way around, such as "aircraft not to flown to XXX country" or "aircraft to be flown only on domestic routes".

Maybe the lessor is an American company and wants it near to US airports if/when Porter goes titters.

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I think that I found the answer to the leasing covenant:

Somehow Porter got Export Development Canada financing for their aircraft purchases. This would bend the rules (but then so did Air Canada get an EDC liquidity backing last year) of "Export" financing.

http://www.edc.ca/english/popups/16027.htm

Maybe Porter had to agree to the cross-border flying provision to make it look like they qualified.

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...I don't know how you define winning, but since Porter isn't profitable, and since it doesn't have the largest market share on the corridors it serves, I think you're smoking the company crack pipe.

Here's a tip. Don't buy Porter shares. It's a Ponzi scheme so that the suckers who come in give the original investors a profit and allow them to escape before the carnage...

Well ace, I'm a little confused, don't you folks celebrate at AC if you lose less than 100 million in a quarter? It's not as though your airline has made any money dear. Admittedly most airlines stocks are very volatile, but the only direction AC stock has ever gone is down. To many, it's an illegal entity that which cancels all its shares, wipes out investors' equity, and then sells new ones under the same name. And please do not talk about carnage especially when it wasn't too long ago that your bosses took their millions out of the company to buy their mansions in Europe and left you behind. Please do not extol the virtues of AC when it comes to stocks, you best be quiet about that.

Second, it's not me who makes the claim about AC losing its elite and super elite folks to Porter, newspapers are and they've printed pictures. Where do you think Porter's market share is coming from ace? Other than a few percentage point from WJ, all of it from AC. After decades in business and seeing a few bankruptcies and taking millions from our tax dollars, now you're boasting about having the largest share in comparison to a company that started 4 years ago against all odds and multiple law suites and obstacles put in its way by your company? Not to worry ace, that too will slip away!

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Well ace, I'm a little confused,

This is the only part of your whole rant I agree with.

If you are so sure of the IPO being a success dispute the numbers rather than constantly making personnel attacks and dredging up old cliche phrases about other airlines. You haven't given any substantive proof that Porter can operate profitably. All you provide is media hype, personnel views and abusive attacks against others in an attempt to pump up the IPO.

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Well, isn't that nice Mr. Bean. No more sifting through each other's trash, this is civilized!

If you are relying on what our intrepid media have to say, rather than what Porter's numbers prove, you are whistling past the graveyard.

It's a competitive business, my friend. Fang referred to it as the closest thing to legalized warfare that exists on the planet. Hiding behind a monopoly has shielded Porter from that reality, but that's going to change.

You seem to know it all. So tell us what happens when:

1. A competitor launches as few as four a day to YUL with departures at 7:15, 8:15, 16:45 and 18:00 with a lower cost structure and walkup fares half the current rate, then fires off the aircraft into W patterns the rest of the day. Will Porter match across the board or selectively target? Actually, it doesn't matter. The result is always the same. :wink_smile:

2. Porter builds on the "success" of Chicago, with those stellar 20% loads thru July 2009, (and then quit reporting the numbers to the US DOT - funny, no disclosure of that in the Prospectus...), then adds Boston, with a historical O&D market that is 66% the size of Chicago-Toronto, then the entire Baltimore / Washington metroplex with a historical marketplace 53% the size of Chicago-Toronto and then adds Philadelphia, with a historical marketplace 34% the size of Chicago – Toronto, (and barely 14% the size of the Toronto-New York marketplace). Why not start with 5x daily just for good measure?

The covenants say a lot of capacity has to be dedicated into the US, but the only numbers Porter has been forced to acknowledge shows a rather sad average of 13.6 passengers on each flight operated to / from Chicago and 29 to/from New York.

http://ostpxweb.dot.gov/aviation/usstatreport.htm#data

Those numbers aren’t particularly close to that 49% BELF reported, eh?

I wonder how IPO investors will feel about any losses they incur when it is discovered those numbers were available to the public if they took the time to hunt them down, but none of the Investment Banks in the consortiums, for reasons unknown, chose to include them in the prospectus.

Investors are a litigious bunch, especially when information is selectively disclosed and the losses start. The Consortium can’t say they didn’t know about it when it’s been brought to their attention.

Still planning on throwing your life savings at the IPO? I know some who will be playing this one, but not by buying.

It’s just math.

:cool:

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