Book Building

Auction Method

Fixed Price Public Offer

Bill Hambrecht, an American investment banker and chairman of W. R. HAMBRECHT & CO., devised the Dutch auction method of share allocation and pricing, and is known as "Open IPO" Model.

In a Dutch auction, a company reveals the maximum amount of shares being sold and sometimes a potential price for those shares. Investors then bid for the number of shares they want and the price they are willing to pay. Once a minimum clearing price is determined, investors who bid at least that price are awarded shares.

Let us take an example to understand the mechanism of Dutch auction. Let's assume that the company XYZ wants to offload 100 shares in the market. 5 investors (A, B, C, D and E) have submitted their bids (price and number of shares applied for) as per the table below: -

Now we start accounting for all the shares starting from the highest bid received and stop when the total count reaches 100 (i.e., number of shares on offer). The price at which we account for 100 shares is 465.

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* Contributed by: -
Vijay Singh Poonia,
PGDM 2007-09,
IIM Calcutta,
Has work experience of 3 years with Indian Oil Corp Ltd.