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Goldman shelves IPO
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September 28, 1998: 7:47 p.m. ET
Rapid decline in banking stocks leads partners to cancel planned offering
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NEW YORK (CNNfn) - In a surprise move, the 190 partners of investment bank Goldman Sachs Group, L.P. are canceling plans to take the company public, citing global market volatility and a recent decline in banking stocks.
Contrary to rumors that Goldman would merely postpone the public offering, the company said in a statement issued late Monday that it will continue to operate as a partnership and will elect a new class of partners which will be announced late next month.
Jon S. Corzine and Henry M. Paulsen, co-chairmen and co-chief executive officers, did not rule out a future IPO if market conditions improve.
"Our executive committee made this difficult decision after giving full consideration to the volatile state of global financial markets and the disproportionately negative impact on the financial services sector.
"When markets and other conditions improve, the executive committee may propose a new plan of incorporation and public offering to the partnership for its approval," the company said.
Goldman's 190 partners voted in August to take the company public, ending a 129-year tradition as a private partnership. At the time, the partners said the increased access to capital as a public corporation would enable the firm to compete more vigorously in an increasingly high-stakes financial services industry.
The partners had said the offering would allow Goldman to beef up its $6.6 billion capital base. Its stock would serve as currency for acquisitions and as an incentive to attract new talent.
The firm had planned to sell a 10- to 15-percent stake in the market in November.
Before the market's plunge, the 190 partners in the privately held investment banking firm stood to gain an average of $100 million each from the stock offering. Had the IPO gone ahead, their stakes would have been worth about $60 million each.
The decision not to launch the IPO comes at a time when adverse market conditions are also hurting the investment bank's profits.
The private partnership reported pretax profits of $754 million in the third quarter, a decline of 19 percent from last year's record-setting $932 million.
Revenue slipped 3.9 percent in the quarter to $2.14 billion from $3.23 billion a year ago.
Goldman attributed the declines to market volatility, the widening of credit spreads, a decline in certain markets and a reduction in global equity values.
All those factors are expected to continue to weigh down earnings.
"We expect those conditions to negatively impact our fourth-quarter results," the company said recently.
David Menlow, president of IPO Financial Network, said the decision isn't that surprising given the current state of the market.
"The state of the IPO market is tenuous at best. Volatility and uncertainty are the enemies of the market... IPOs are considered a luxury in many cases and when everything's running downstream, you have to follow," he said.
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Goldman Sachs
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