DETROIT — The IPO for Rocket Companies, the parent of Detroit-based Quicken Loans, appeared Wednesday to lose some power before liftoff, according to IPO experts.
The stock is expected to begin trading on the New York Stock Exchange Thursday morning. But experts say some reports indicate the deal involving the initial public offering, expected to be priced later Wednesday, could bring about a billion dollars less to the table for the mortgage giant than first forecast.
Rocket is now seeking to raise $2 billion in an initial public offering, down from an estimated $3.3 billion, according to a Bloomberg report Wednesday quoting unnamed observers.
The IPO price is likely to be lower and in the $18 to $20 range, instead of a $20 to $22 range, as initially expected in late July, Bloomberg reported.
“The reduction comes as investors pushed back on the company’s valuation, believing it should be priced as a consumer or financial company rather than a technology business,” the Bloomberg report stated.
“The cut in the deal price in particular seems a reaction to the poor performance of larger U.S. domiciled companies which have recently gone public,” according to Josef Schuster, CEO for IPOX Schuster in Chicago.
He noted that the Warner Music Group, SelectQuote and Royalty Pharma — all recent IPOs — have seen pullbacks, which could be driving institutional buyers of U.S. IPOs to get a better deal upfront.
Terms for the Rocket IPO won’t be finalized until later Wednesday, and could change, experts said.
The Rocket IPO is also unique in its class structure, which leaves a good deal of control with founder and chairman Dan Gilbert, who also owns the NBA’s Cleveland Cavaliers.
Gilbert has 79% voting power in what’s a multitiered stock structure.
Investors could see added risk when it comes to the structure of ownership, as well as the limited voting power for outside shareholders, according to David Sowerby, managing director and portfolio manager for Cleveland-based Ancora Advisors.
In addition, Sowerby said, there’s a longer term risk inflation could resurface and hinder the mortgage market.
The Quicken IPO, first rumored in June, would still rank among the top U.S. IPOs in 2020 even if it raises $2 billion instead of more than $3 billion.
Analysts say the timing is good for the company, given that the mortgage market is hot thanks to ultra-low interest rates.
As a publicly traded company, Rocket would rank among the largest Michigan-headquartered companies based on an expected market capitalization of about $40 billion.
Kalamazoo-based Stryker is No. 1 with a current $71 billion market capitalization. Detroit-based General Motors ranks No. 2 with a current market cap of $36.9 billion.
Midland-based Dow Chemical ranks No. 3 at $30.6 billion; and Dearborn-based Ford Motor ranks No. 4 at $26.8 billion.
Battle Creek-based Kellogg ranks No. 5 with a current market capitalization at $23.9 billion.
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