Groupon Raises $700 Million In Advance of IPO

Groupon Prices Shares At $20, Valuing Company At $12.7 Billion

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Groupon Inc. raised $700 million in its initial public offering, said two people with knowledge of the situation, 30 percent more than it sought and valuing the biggest online-coupon provider at about $12.7 billion.

The Chicago-based company sold 35 million shares at $20 each, said the people, who declined to be identified because the information isn't public. Groupon's sale is the biggest IPO by a U.S. Internet company since Google raised $1.9 billion in its 2004 initial offering, according to data compiled by Bloomberg.

Groupon stopped taking orders from investors for its IPO a day earlier than planned because of high demand for the shares, people familiar with the sale said yesterday. The offering attracted interest even as internal missteps, unprofitability and an expensive valuation compared with its peers made some investors skeptical. Groupon had offered 30 million shares for $16 to $18 apiece, or as much as $540 million.

"This stock is very much like a lottery ticket," said Espen Robak, president of New York-based Pluris Valuation Advisors, whose firm helps private companies value their stock and other securities. "You could argue it's a very expensive lottery ticket."

While Groupon said in its prospectus that it won't need to use the proceeds from the IPO for at least a year and has no urgent cash needs, the company owed almost twice as much to merchants at the end of September as it held in cash. Marketing costs rose 37 percent in the latest quarter, four times as quickly as its cash pile.

There are also competitive pressures. Amazon.com, Google and LivingSocial all offer group discounts and are giving more favorable terms to merchants. That's led Groupon to accept lower margins to avoid losing business.

Advisers to Groupon based the price range for the IPO on a projection that the company will have sales of about $2.1 billion next year, people familiar with the matter said last week. The $17 midpoint valued the company at $10.8 billion, or about 5 times that sales prediction, making Groupon more expensive than Amazon.com, the world's largest online retailer, which traded at about 1.5 times estimated 2012 revenue today.

Co-founders Andrew Mason, Bradley Keywell and Eric Lefkofsky will collectively own more than a third of Groupon's common stock, and they will also share more than 58 percent of the voting power by virtue of their Class B shares, which have 150 votes each. Class A stockholders get a single vote.

Lefkofsky, the chairman, told Bloomberg News in June that he expected the company to be "wildly profitable," a statement the company later asked investors to disregard in a regulatory filing. Company executives are forbidden from talking about financials during the so-called quiet period before an IPO.

In September, the company restated its revenue figures to exclude sales passed on to merchants and announced the departure of its second operating chief in six months. It had a net loss of $214.5 million for the first three quarters of 2011.

Groupon floated a record-low percentage of its total outstanding shares among U.S. Internet companies, helping to stoke demand. Only 4.7 percent of the stock was made available to the public, based on the offering terms. That's less than in any U.S. Internet company IPO of more $200 million since at least 2000, Bloomberg data show.

All of the shares in the offering were sold by Groupon, and net proceeds at the midpoint of the marketed range were estimated at $479 million. Morgan Stanley, Goldman Sachs Group Inc. and Credit Suisse Group AG led the IPO.

The shares will start trading tomorrow on the Nasdaq Stock Market under the symbol GRPN.

-- Bloomberg News --

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