Tough Times for Equity Offerings Bring Back the Art of Winks and Nudges
Companies can’t afford to assume there’s a strong market for new shares, so they have to prepare investors carefully.
These days, when a publicly traded company wants to sell more stock, a delicate dance begins. An investment banker will call major investors with a pitch that’s vague on some important details. An unnamed company within a certain sector is considering a share sale, for instance. If the investors want to learn more, they’ll have to promise to keep any specific information about the company secret and refrain from trading on it for a while.
This exchange is called “crossing the wall.” It’s like an initiation into the club of those with material, nonpublic information that’s normally limited to corporate insiders and their closest advisers. Bankers are responding to uncertain market conditions by ramping up these secret talks, which are both legal and sometimes necessary to avoid an all-too-public disappointment. They can happen when a company is issuing new equity or when a major shareholder is looking to move a large chunk of existing shares. “As an issuer, the last thing you want to do is make a public announcement that you’re getting ready to do an issuance and not know—or not have a high degree of confidence—that it will be successful,” says Keith Canton, head of Americas equity capital markets at JPMorgan Chase & Co.