Instead of delivering the kind of opening pop often seen with initial public offerings, shares of money manager Sprott Inc. fell as far as $9.31 or almost 7 per cent after the opening bell and finished their first day of trading at $9.84, down 16 cents.
Volume was massive, with nearly 12.4 million of the shares - a little more than half the number sold in the IPO - changing hands, making Sprott the second most actively traded issue on the exchange after Bombardier Inc.
Sprott, a highly regarded Toronto resource and commodity fund operator that manages about $6.8-billion in assets for its clients, raised a total of $200-million in its IPO, the largest in Canada this year. The 22 million shares were priced at $10 each last week, and underwriters have an overallotment option for another three million shares.
"My guess is that a lot of people got in as momentum players looking for a pop, and maybe when that pop didn't happen, they just turned around and sold it," said Ian Nakamoto, director of research at MacDougall MacDougall & MacTier Inc. in Toronto.
Given the current strength of resource and commodity stocks, areas where Sprott has gained stellar returns and an equally stellar reputation, Mr. Nakamoto had expected the shares to jump at the opening bell. "I was dead wrong on that one," he admitted ruefully.
Still, Mr. Nakamoto also noted that Gluskin Sheff & Associates, another Toronto-based money manager, had a similar experience when it went public almost exactly two years ago. Issued at $18.50, Gluskin Sheff's shares fell 21 cents on their first day of trading, dropped as far as $12.50 in November of 2006 and did not rise above their IPO price until the following February. They hit a high of $30.50 last September and are now trading at about $22.50.
The IPO was a secondary offering of shares owned by founder Eric Sprott, 63, and other employees, meaning they, not the firm, are getting the proceeds. Excluding the overallotment, Mr. Sprott himself sold more than 14.8 million shares in the issue, for total proceeds of $141.1-million. This reduced his stake in the firm to 68.2 per cent from 78.1 per cent.
Michael Smedley, chief portfolio manager at Morgan Meighen & Associates, had also expected the shares to climb at the opening bell. Like Mr. Nakamoto, he figures the action is being driven by investors looking for a quick score.
"You've got those who flip because they see the glamour of the Sprott name and they believe they're going to be able to pull a fast profit in one day of trading," Mr. Smedley said. "But when they see that fast profit isn't occurring, they bail ... out."
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