That Vonage’s IPO has been disastrous is nothing new. But, each day brings more bad news for Vonage and I don’t see it ending any time soon. First, despite Vonage’s recent statement that it expects customers who purchased pre-IPO shares to make good on their commitments, Vonage may have made a major misstep that could let those customers off the hook.
The VoIP pioneer may have violated securities law by soliciting share purchases from customers without providing a link to a prospectus. In a document filed with the SEC prior to the IPO, the company admitted that in the emails and voice mails it sent to customers soliciting their purchases, Vonage did not provide a link to the most recent prospectus, as required by the SEC.
This error could give disgruntled customers/stock purchasers an excuse not to pay for the now-sinking stock.
“Recipients could seek to recover damages or seek to require us to repurchase their shares at the IPO price,” the company said in the filing.
Vonage, however, said it rectified the problem by requiring cusotmers to read the prospectus before they actually agreed to buy the stock.
There is plenty of blame to go around. Some observers blame the investment banks for valuing the stock too high to begin with.
“Investment banks are supposed to do a better job at pricing a stock,” said Robert V. Green, a telecommunications industry strategist with Briefing.com, a financial analysis firm. The disconnect between the price and investors’ willingness to pay, he said, led to a frantic sell-off.
“There was a mass exodus,” he added. “I.P.O. prices go down, but not this far, this fast.”
The real problem now is that this is a story with legs — the press is on the case and more bad publicity is in the offing for Vonage, probably for weeks, if not months, to come. Count on at least one class-action lawsuit, and maybe an SEC investigation. All this fallout will continue to grab headlines, chew up the company’s PR and legal budget and further alienate customers and drive down the stock.
Richard Greenfield from Pali Capital characterizes the possible melt-down more moderately.
“Instead of rewarding people and driving loyalty, this could actually have backfired,” said Richard S. Greenfield, a telecommunications industry analyst with Pali Research. “How much more is Vonage going to have to spend in marketing to rebuild its image and visibility?”
I think it’s only the beginning of a very ugly ride for Vonage.
Cynthia Brumfield at 12:09 PM|Comments(0)
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