It's a very rare thing when a schadenfreude-fueled disaster that we predicted, witnessed, and delighted in turns out to have yet another mindbogglingly darkly comic layer that we get to unpack days later...so thank you, Uber and Morgan Stanley.
Uber’s underwriters, led by Morgan Stanley, were so worried the company’s initial public offering had run into trouble, they deployed a nuclear option ahead of the deal last week, so they could provide extra support for the stock, four people with knowledge of the move said.
This level of support, known as a “naked short,” is a technique that goes above and beyond the traditional help a new offering can get.
This is almost too much for us.
Not only are we giggling at the balls it takes for Morgan Stanley to pull a move like this mere days before an IPO that was aiming for a valuation outside the logical parameters of space and time, we are physically laughing at the bagholders who gladly accepted their bags from MS with an apparent understanding that the bank was actively shitting its pants in the eleventh hour:
Some of the bankers tried to console market participants prior to the opening of trading by telling them that there would be additional support from the naked short, said one of the people, who asked not to be named discussing private conversations. The exact size of the naked short could not be learned, but it is expected to have been “fairly small,” two of the other people said.
Morgan Stanley does not look great here, but their clients look literally insane.
Somehow it's still totally fine and legal for an underwriter to deploy a naked short on one of its own IPOs, which is weirdly almost logical, but not even a regulatory change could obfuscate the stark reality that an underwriter naked shorting one of its own IPOs is a tacit admission that it has definitely overvalued the company it's selling to investors.
And, sure, we get the premise that the long-term appeal is buying back some Uber stock at a discount, but we would also argue that what the fuck kind of thinking is that in terms of this IPO? Uber loses $3 billion a year! Where does the discount kick in? Summer 2027?
Uber's appeal as a public company at this stage of its life has always been a mystery to us, yet even we are a little shocked that the bankers taking it to market were so sure it was priced to drop that they went through the trouble of building a naked short into the IPO and then sold that decision to investors as what we can only define as "Dipshit Insurance."
It always felt like the post-mortem on the Uber IPO was going to yield some fun revelations, but this is deliciously ridiculous.