NEW YORK (CNNfn) - Goldman Sachs stock surged on its first day of trading Tuesday as investors clamored to get a piece of one of Wall Street's choice investment firms -- and the second-biggest initial public offering in the United States.
Underwriters Monday announced they would sell 69 million shares of Goldman at $53 apiece in the long-awaited offering, near the top of the range Goldman Sachs (GS) had expected, according to filings with government regulators. That made the $3.66 billion offering the second-biggest in the United States after Conoco's (COC) $4.4 billion IPO last October.
After a delayed opening, Goldman stock jumped as high as 77-1/4, though it later gave back some of the gains to end at 70-3/8, a 32.8 percent premium over the IPO price. Analysts said some investors rode the stock to its peak and then sold, or "flipped" it, for a quick profit.
"We were surprised that it popped up as much as did," said Cameron Scrivens, associate portfolio manager with AGF Management Ltd. in Toronto. "We were thinking it would come out around the $60-mark, but it fared a lot better than that," he said, noting the firm bought some of the shares. He declined to elaborate on the purchase.
Other analysts weren't as surprised to see Goldman stock perform so well.
"This was a company that was in hot demand, and I would have been surprised if they had come in anywhere less than where they did," said Ivo Welch, a finance professor at UCLA who tracks public offerings.
In fact, Welch predicted Monday Goldman's share price would gain 30 to 35 percent from its IPO price -- which is exactly what it did.
The gain came as most of the stock went to Goldman's big institutional clients and its wealthiest private clients, Welch said. Still, some analysts were taken aback by the dizzying speed with which Goldman shares shot out of the gate.
"The jump was quite impressive," Welch said. "The stock is now at a level that's just about where it should be, if you look at their competitors."
Goldman shares ended the day at 20.4 times estimated 1999 earnings of $3.45 a share, the average estimate of 12 brokerage firms that helped underwrite the IPO. Merrill Lynch (MER), meanwhile, the nation's biggest broker, ended at 15.8 times estimated profits while Morgan Stanley Dean Witter (MWD) traded at 16.3 times.
Goldman's offering has put publicly traded stock in the investment firm's hands to use for acquisitions and to reward employees -- something it has not had since its founding as a private firm 130 years ago. It also means a big payday for Goldman's partners. The firm's 221 partners will own a collective 264 million shares, worth roughly $84 million for each partner based on Tuesday's close. At Monday's IPO price, that was $63 million for each partner.
The New York-based firm also plans to distribute stock to the rest of its employees.
Founded in 1869 by German immigrant retailer Marcus Goldman, the firm chose to go public last June after rejecting share sales over the last 30 years. After postponing its offering in September due to volatile market conditions last summer, the bank finally did the deed this week, coincidentally setting its IPO price on the same day the Dow Jones industrial average surpassed 11,000.
Goldman ended up selling 51 million shares, 9 million more than initially planned, bringing it roughly $2.7 billion in fresh capital. Two of the firm's limited partners, Japan's Sumitomo Bank (SUBJY) and Hawaiian education trust Kamehameha Schools/Bishop Estate, each raised $477 million by selling 9 million shares apiece.
Even after the IPO hype subsides, AGF's Scrivens still expects the stock to perform well, particularly as investors begin to get a glimpse of the kind of profits the firm can generate from its various businesses.
"As far as the company goes, we think it's a top-notch financial stock, and these days finding one of those types of companies is difficult," he said. "We expect it to perform quite well over the long term."
-- by staff writer Corey Goldman