"You should rely only on the information contained in this prospectus."
If only that were true.
Securities law requires IPO boilerplate statements supposedly to protect both sides.
Investors theoretically get their due warnings, so they don't blindly grab at an initial public offering like journalists rushing a free banquet table.
At the same time, companies that follow the SEC's rules know they're afforded at least some insulation from civil liability, should their stock tank. And stock issuers can claim they're being open and honest -- it's good PR.
And it's definitely public relations. That would explain how prospectuses -- supposedly a venue for listing everything about a company, good and bad -- often contain so little in the way of useful information.
Take the filing of Transmeta (proposed ticker: TMTA) as an example.
The oft-hyped chipmaker is known at least as much for being secretive as anything else. Going public apparently hasn't made Transmeta more open: if you relied solely on the IPO registration filed yesterday with the U.S. Securities and Exchange Commission, you would think Transmeta remains nothing more than another lame startup that happens to employ Linus Torvalds.
There are no customers listed. Almost no partners. Almost no revenue, although that should surprise no one, since the company only started shipping products a few months ago.
If you only read the prospectus, you would know IBM is currently Transmeta's sole manufacturer. But you wouldn't know that Transmeta also wants to expand its foundry base, possibly to include companies in Taiwan.
If you only read the prospectus, you would know Transmeta's largest stakeholders include well-known Silicon Valley VC firm Institutional Venture Partners, Paul Allen's Vulcan Ventures and George Soros' Quantum Industrial Partners. You wouldn't know Transmeta actually has a much longer list of investors, following a recently completed round of funding that raised $88 million.
If you only read the prospectus, you would think Intel (Nasdaq: INTC) and Advanced Micro Devices (NYSE: AMD) are poised to immediately move into Transmeta's niche. You wouldn't know that neither Intel nor AMD have any focus on Internet appliances. For that matter, neither of them have put too much into ultra-light notebooks, which tend to use older, slower versions of the Big Two's mobile chips.
None of this qualifies as the kind of hype that would mislead investors. You know, the kind of hype that the SEC tries to quash during IPO quiet periods. No, all of this is just basic corporate information: customers; suppliers; stakeholders.
To be fair, keep in mind that yesterday's Transmeta filing was only the first registration. These S-1 forms are usually updated in the months leading up the actual IPO.
But it still left out plenty of information that was already available. And it's all information released by Transmeta itself, as opposed to the products of a rumor board.
Unfortunately, the IPO process spooks companies into clamping down so much that relevant, important data will often be excluded from the document that's supposed to be investors' sole source of information. And the SEC-enforced quiet period means the average investor won't learn anything more.
For that matter, the SEC ought to follow the German example and require companies to list future targets of revenue and earnings, with the models behind them explained, so that readers can decide whether those goals are valid or not. After all, investors aren't buying a stock for its past performance.
Cynics will tell you that few investors read the prospectuses anyway. And only a fool would invest in a company before trying to gather as much information as possible, from as many sources as possible.
Still, it would help if the prospectus would provide a broader base of information to start with. After all, it is supposed to be the sole source of IPO truth. 22GO>