How Groupon Escaped Bankruptcy

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Groupon recently escaped having to file for bankruptcy when the company listed its initial public offer (IPO) at $20. With the successful listing, Groupon will not have to file for bankruptcy, at least this quarter. The company’s liabilities as at the end of September amounted to $505 million, which was more than twice the $243 million cash they had in their kitty. Out of that amount, they owed $465 million to their own merchants for whom they sold Groupons, their half price coupons.

Just after the start of listing, the price of Groupon shares rose to $31 but thereafter fell rapidly. Anyone who bought at higher than $30 would have likely gotten burned. Even the underwriters knew the flaws of the company but agreed to underwrite anyway because they needed the fees due to the recession. These included Goldman Sachs, Credit Suisse and Morgan Stanley. Even with such a large group of 11 lead underwriters the deal had to be cut back to 5% of the shares outstanding to get it sold.

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