When is a Dutch Auction Appropriate?

Gordon Davidson, Fenwick & West, LLP

Gordon questions whether the Dutch auction system is ever appropriate for stock, since it was developed for tulips, of which there is a finite quantity. He worries that people will artificially inflate their bids if they know that the company is planning on giving each bidder only a percentage of what they ask. He also speculates that the institutional investors may not bid, but will wait until the market settles. Whatever the case, there is not yet enough data to convincingly predict when a Dutch auction will be successful.