I have been waiting for an IPO for 5 months now.  Intrepid Potash (IPI), will finally go public next week.  If you have been following the Ag stocks, you will know that potash and other chemicals are going through the roof.  Agrium and Potash are selling potash to China for 3x the amount it sells in Canada.  So, IPI expects shares to be sold in the $24 to $26 range.   I have read the prospectus.  I like the financials, but a statement on dilution concerns me.  In the prospectus, it states that if you purchase common stock, you will suffer an immediate and substantial dilution in net tangible book value per share.  It says the stock will have an immediate dilution of $22.78 per share (if the share was priced at $25.00).  What does this mean? 

Great question Norm. I have no clue myself, but would love to see this one answered. Where are all you savvy Zecconians out there?

Update from Reuters: http://www.reuters.com/

"Intrepid Potash Inc on Thursday raised the expected terms of its planned initial public offering to 30 million shares at $27 to $29 each. The company had previously planned an IPO of 24 million shares at an estimated price of $24 to $26 each."

Tangible book value is calculated by first taking tangible assets and subtracting liabilities to arrive at net tangible assets, or tangible equity.  Then, after any adjustments for preferred issues,  tangible book value is calculated by dividing the net tangible assets by the number of common shares outstanding.

When new stock is issued for cash the tangible equity increases by the net consideration paid for the shares.  The number of shares increases by the number of shares issued.  Therefore the tangible book value changes as well.

In this situation the tangible book value was either very low and/or there aren't a lot of new shares being issued relative to those already outstanding.  While the issuance is accretive to tangible book, tangible book is so low that the new tangible book value is very small.  That diminition in tangible book compared to the cash paid for the new shares is referred to as dilution, and it is huge in this instance.

Thanks Uncle Billy! Now what do you think about this IPO Norm?

So, If I buy shares at $25.00, does this mean that the share price will automatically drop 22 points?  I don't think this is the case.  I just want to be assured that if I buy 100 shares, and it goes up, and I sell at $35.00, I have made my $1,000.00.

I've also been looking at this for sometime. Heres the info i have avail:

Company Name: Intrepid Potash
Symbol: IPI
Price Range: $24-26
Shares: 24 MIL
Underwriter: Goldman S(L)achs
Trade Date: 4/22/08

I believe the hype will bump this up with POT being so high (no pun intended.) Could be easy money but you never know about them rogue analysts! Anyway, Good luck.

EDIT: New info shows 30 MIL shares @$27-29

From what I know about dilutions, is that they usually happen when there is a secondary offering of the stock, (i.e. the company sells more shares to raise more money for a project or acquisition.)  The dilution statement may refer to the current equity holders.   Is the company publically trading on an exchange outside of the US? either way there may be investors (if they company has really not been taken public, then their shares are not publically traded, but may still exist... think Venture Capitalists and Angel Investors.)

my second point is that when they do the IPO pricing for $24-$26 range, expect it to open at $30-$33 on the first day of trading.  The only way you can get-in on the IPO price is if you open an account with one of the underwriters (usually GS, MS, CS have good records -- the stocks they take public do rather well)  but what happens to the price after the IPO week is uncertain.

my third point is that the Ag stocks have had their run, now is not the time to play catch-up.  My play would be to wait until they are falling down, and play them on the short side.

Good luck, I hope this helps!

---

Disclaimer I hold the following positions
Bullish
GOOG, (Dec 07 - March 08)
PENN, (Until acquisition)
TINY, (Dec 07 - March 08)
NTES, (Dec 07 - Dec 08)
TSL, (Dec 07 - Dec 08)


Bearish

I just do not know if I believe the Ag stocks have had their run.  Did you see what China is going to pay for potash.  The price of this chemical/commodity keeps going up.  With the demand for crops and the fight between crops for food and crops for energy, and through in pestilence and your occasional drought or famine in the world, I think you could play Ag for a few more years.  You just have to watch for the drops.  I have made a great deal of money on Agrium.  It has now gone from $60 to $90 in about a 2 months.  Watch for it to pull back, and pick up some more.  Oh well, if you get a chance to look at Intrepid's prospectus, I think the financials have been pretty good.  This will actually be the company's first offering.  I could copy it to a pdf format; but I am not sure if I can make an attachment or not.

I found this on the Mad Money website:

Cramer is now getting behind Intrepid Potash, a fertilizer IPO set to price on Friday that is 100% levered to potash, a crucial component of fertilizer. The world’s largest potash producer, POT, is only one-third potash despite its name. IPI will be the first Western pure play on the substance and it just so happens to have much lower production costs than POT.

IPI’s public offering is being underwritten by Goldman Sachs, Merrill Lynch and Morgan Stanley, among others. That typically means it will get sponsorship from those firms – and that is likely to be a boon for the stock. If you can, give these brokers some commission to get in on the deal, Cramer recommended.

IPI is planning on using the majority of the proceeds from the offering to buy a mining company owned by its founders, a little bit of self-dealing that Cramer doesn’t mind too much because of the his bullish stance on potash. The rest of the cash that’s generating will be used to pay off debt and production expenses.

Cramer would try to get in on the ground floor of this IPO but said that, for those who can’t, they can still buy the stock in the after market as long as it doesn’t get any more expensive than $34, a price he got by predicting its earnings multiple based on what he thinks it's premium will be to POT.

The ag bull market is here to stay, as far as Cramer is concerned. Ride it higher with IPI.

Not too many people were fortunate enough to get in under $34. I monitored the movement in the pre-market hours and found people bidding as low as 1 cent and asking 300K. after laughing a little bit, i placed a realistic bid of $37.50 and it executed minutes after open. my price target for this is $70 based on momentum alone. someone out there will call this overvalued and blah blah blah then some will  listen, sell and possibly buy back again. i might sell before or after close on friday depending where its at. im enjoying the traders market while it lasts.

good luck.

normjaso:

I found this on the Mad Money website:

Cramer is now getting behind Intrepid Potash, a fertilizer IPO set to price on Friday that is 100% levered to potash, a crucial component of fertilizer. The world’s largest potash producer, POT, is only one-third potash despite its name. IPI will be the first Western pure play on the substance and it just so happens to have much lower production costs than POT.

IPI’s public offering is being underwritten by Goldman Sachs, Merrill Lynch and Morgan Stanley, among others. That typically means it will get sponsorship from those firms – and that is likely to be a boon for the stock. If you can, give these brokers some commission to get in on the deal, Cramer recommended.

IPI is planning on using the majority of the proceeds from the offering to buy a mining company owned by its founders, a little bit of self-dealing that Cramer doesn’t mind too much because of the his bullish stance on potash. The rest of the cash that’s generating will be used to pay off debt and production expenses.

Cramer would try to get in on the ground floor of this IPO but said that, for those who can’t, they can still buy the stock in the after market as long as it doesn’t get any more expensive than $34, a price he got by predicting its earnings multiple based on what he thinks it's premium will be to POT.

The ag bull market is here to stay, as far as Cramer is concerned. Ride it higher with IPI.

jaywalker:

Not too many people were fortunate enough to get in under $34. I monitored the movement in the pre-market hours and found people bidding as low as 1 cent and asking 300K. after laughing a little bit, i placed a realistic bid of $37.50 and it executed minutes after open. my price target for this is $70 based on momentum alone. someone out there will call this overvalued and blah blah blah then some will  listen, sell and possibly buy back again. i might sell before or after close on friday depending where its at. im enjoying the traders market while it lasts.

good luck.

Nice move Jay. What about you Norm? Did you get some this morning?

How could you buy it a 37.50 ?

 

The lowest price today was 44.44.

oops.. i got in @ $47.50. i did try to bid $37 (pre-market) at first but it wasnt working out. i readjusted and got my 2nd bid executed. im up slightly today. anyone else get in?

MRPARKLAND:

How could you buy it a 37.50 ?

 

The lowest price today was 44.44.