French Auction

French Auction :
Meaning : A French auction (Offre à Prix Minimal, formerly Mise en Vente) is a uniform-price auction used for pricing initial public offerings in France.

In this offering, the firm announces a minimum (reserve) price. Investors place sealed bids for quantity and price. When the bids are in, the firm negotiates a minimum and maximum price with the market regulator (the Société des Bourses Françaises, or SBF).
Any bid above the maximum price is eliminated as a virtual market order. The bidders who bid between the minimum and maximum price are awarded shares on a pro rata basis, each paying the minimum price.
In the event that demand for the stock is too high, the IPO may be changed to fixed-price offering.
Auction pricing optimised through bidding.In case of French auction, allotments made at bid price.
Suitability : In case of French auction, Low floating stock/ low trading volumes vis-a-vis number of shares on offer.
Methodology :
-To a set of institutional Investors
-At a price discovered through the bidding process.
-For a pre-determined number of Equity Shares
Allocations : At a bid price incase of French Auction-Marketing through Analysts' meet and one to one discussions.
In case of listed companies, placement of less than 15% equity to each investor to avoid trigger to Take-over code.
Advantages :
-Optimises receipts to the Gol(amount higher in case of french auction).
-Transperant mechanisim.
-Less time consuming with no regulatory compliance requirements.
-Low transaction cost.
Disadvantage :
-Does not ensure widespread shareholding.
 
Disclaimer : This is a knowledge sharing report and accept no claims on any basis.