Many thanks to Calculated
Risk for explaining the finer points of the greenshoe option. It turns out
that those 20 million extra Blackstone shares that the lead managers sold
on Monday didn’t necessarily make $234 million for Steve Schwarzman personally
after all. The point of a greenshoe, it seems, is to help support the price
of the stock if it falls below the offering price – as BX, of course,
on Tuesday.
Of course, just because the banks can support the issue doesn’t mean
they are, in fact, supporting it. But if you look at the graph of the BX stock
price since it fell below the $31 level, it does look very – well, horizontal.
There was some volatility at the beginning of both Tuesday’s and Wednesday’s
trading, but then on Tuesday the stock rapidly stabilized just below the $31
offer price, and on Wednesday it stabilized at or slightly above the $30 level.
All of this is consistent with the banks using the proceeds from their Monday
sale of 20 million shares at $31 apiece to prevent the stock from dropping too
embarrassingly. After all, total volume in BX on Tuesday was only 29.6 million
shares, while volume on Wednesdsay was even lower, at 18 million.
Under the terms of a greenshoe operation, the banks can support a stock below
its offering price, but they can’t support it above the offering price. That,
too, is consistent with the fact that BX never seems to have traded above the
$31 level since the minute that level was broken on Tuesday morning.
If the banks are supporting the deal, then I was certainly wrong on Tuesday
when I accused
them of deserting their client. On the other hand, it would mean that Blackstone’s
closing price today, of $29.92 (or 3.5% below the offering price), might actually
be artificially inflated. Which is a little scary, considering that the stock
traded as high as $38 per share on Friday, and has already fallen more than
20% from that level over the course of four trading sessions. It would also
mean that the banks early on Tuesday decided that there was far too much selling
pressure at $31 to support the deal there, and decided instead to try to place
a Tuesday floor slightly below the offering price. And a Wednesday floor slightly
below that.
My guess – and it’s only a guess – is that the banks are intervening,
and that when they stop, the share price is going to fall even further. If holders
of BX don’t sell their shares units now, they might regret
their decision in a few days’ time.