Ending speculation, Internet phone company Vonage Holdings Corp. said customers who agreed to buy into its initial public offering last week must follow through on their commitment to buy shares, even though they have fallen more than 29 percent in value.
Vonage had set aside up to 13.5 percent of its $531 million offering for customers, an unorthodox move aimed at increasing customer loyalty and creating publicity ahead of its IPO. That move backfired when the stock dropped almost as soon as it started trading.
IPO participants committed to buy the stock at $17 a share. On Thursday, the shares closed at $11.63, down 39 cents, or 3.2 percent, on the New York Stock Exchange.
Under the terms of the program allowing customers to participate in the IPO, "if a customer was allocated shares in the Customer Directed Share Program, that customer is obligated to purchase their share allocation from the underwriters," Vonage said in a statement late Wednesday. "To be clear, we have not offered and are not offering to repurchase any of the shares of common stock from our customers."
However, Vonage said in its prospectus that it has agreed to pay the banks that arranged its IPO for any losses arising from customers who refused to pay for their shares. That unusual provision helped fuel speculation, even though it may have been legally impossible for Vonage to buy back shares from one class of IPO investors to the exclusion of others.
Deutsche Bank, Citigroup and UBS were the lead underwriters of Holmdel-based Vonage's offering.