An initial public offering reaches the market in three steps: a price range, an offer price and a first trade. Anthropic's offering, expected to price on Wednesday, Nov. 18, and begin trading Thursday, according to CNBC, shows how each one works.
Step one: the range
A company and its underwriters open an offering with a range, the band in which they expect to sell the shares. Anthropic set its range in a release on Nov. 10: $70 to $78 a share for 825,000,000 Class A shares.
The range is a proposal. Nobody has bought anything at that point. Orders are gathered during the marketing period that follows, and the final price can land inside the range or outside it.
The underwriters are the banks that buy the shares from the sellers and resell them to investors. Anthropic's release named Goldman Sachs and Morgan Stanley as the banks from which copies of the prospectus can be obtained.
Who gets the money
Not every share in an offering comes from the company. Anthropic's release splits the 825,000,000 shares in two. Anthropic is selling 801,351,354 of them. Existing stockholders are selling the other 23,648,646.
The difference matters for the cash. The company receives the proceeds from the shares it sells. It receives nothing from the shares sold by existing stockholders; that money goes to them.
As a matter of arithmetic, 825,000,000 shares at the top of the range comes to $64.35 billion, a figure investingLive also reported. The company's share of that is smaller, because some of the shares belong to the selling stockholders.
The extra shares
Anthropic granted the underwriters a 30-day option to buy up to 123,750,000 additional shares. That is 15 percent of the base offering. The option gives the banks room to sell more shares than the base deal if demand supports it. If they use it, the offering gets bigger after the first day.
Step two: pricing night
The offer price is set after the order book closes, usually the evening before trading. For Anthropic, CNBC reported, that is expected Wednesday.
That price is what investors who received an allocation pay. It is also the price that determines the company's proceeds. It is fixed once, and it does not move.
Demand can be large going into that night. Bloomberg reported that Anthropic's offering is roughly six times oversubscribed, according to Kiplinger. Up to 20 percent of the deal is set aside for retail investors, investingLive reported. An oversubscribed book describes orders. It does not set the price on its own.
Step three: the first trade
Anthropic has applied to list on the Nasdaq Global Select Market under the symbol "ANT." Once the shares are listed, they trade between buyers and sellers in the open market. The first trade is the first price at which those orders meet.
The opening trade can differ from the offer price, above or below it. The company does not receive any money from that trade or from any trade after it. Its cash was settled at the offer price.
Two prices, two jobs
A practical way to keep the steps apart is to ask who is on each side. On pricing night, the sellers are the company and its existing stockholders, and the buyers are the investors who received shares from the underwriters. In the first trade, the shares change hands between market participants, and the company is no longer a party.
The offer price sets what Anthropic raises. The first trade sets what the market will pay that morning. They are different numbers, set on different days, for different purposes.