Twitter Inc. (TWTR:US) will trade $12 higher than the top estimate of its initial public offering price by June, according to structured product investors who placed winning bets that Facebook Inc. (FB:US) stock would fall after issue.
The short-message Internet service will raise about $2 billion tomorrow, with shares priced as high as $25, according to a regulatory filing on Nov. 4. Warrants sold by German broker Lang & Schwarz Tradecenter AG (LUS) indicate a price for the shares of $36.5 in seven months-time, said Carsten Luetke-Bornefeld, head of trading at the Dusseldorf-based firm.
UBS AG (UBSN) and Commerzbank AG are among banks listing 340 structured products for European investors tied to Twitter stock which starts trading tomorrow. When Facebook raised $16 billion in the biggest technology IPO of all time, the most actively traded securities were put warrants, which gain if the shares drop below a pre-defined level, generating profits of as much as 500 percent for warrant investors.
“The interest in Twitter is comparable to the Facebook mania, but until the bell rings tomorrow, it awaits to be seen what investment thesis will prevail,” said Heiko Geiger, head of public distribution of structured products for Germany and Austria at Bank Vontobel Europe AG in Frankfurt.
Vontobel is among banks listing 154 call warrants and 41 put warrants on European exchanges, Bloomberg data show. The securities are being offered with strike prices, the level at which the securities profit or not, ranging from $40 to $15.
Lang & Schwarz AG’s warrants are the first to indicate where investors think the stock could be priced, Bloomberg data show. Investors traded 25,203 euros ($34,000) of the broker’s securities today, according to data compiled by Bloomberg.
In the week after Facebook’s IPO in May 2012, European investors bet the stock would fall more than 40 percent below its $38 listing price in seven months. The most actively traded structured products were put warrants with strike prices as low as $22. Facebook was quoted at $49.8 (FB:US) at 11:07 a.m. in New York.
Twitter boosted its IPO price to $23 to $25 a share, from an initial estimate of of $17 to $20, which would give the microblogging service a market capitalization of as much as $13.6 billion. That would value the company at 11.8 times its estimated 2014 sales, higher than the 11.4 times price-to-sales ratio for Facebook.
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