Today, Levi Strauss & Co will begin trading on the New York Stock Exchange, with shares expected to be priced between $14 and $16. This is the second time the clothing company has launched an initial public offering (IPO), the first time being 1971.
Nicholas Guest, professor of accounting at the Cornell SC Johnson College of Business studies how companies make decisions when trading in the equity market. He says investors should approach this IPO with a level of skepticism.
“Because Levi insiders are selling many of their shares while retaining control of the company, this IPO seems like an attempt to cash out on the company’s storied success during a slow-down in the jeans business. This tactic, combined with the new equity issue and existing public debt, allows the Haas family insiders to use outsiders’ capital to finance the shift away from jeans into riskier, more competitive types of clothing, such as athleisure and women’s apparel.
“Given the worsening incentives and governance of the controlling shareholders, one wonders how successfully they will be able to navigate this diversification of product offerings. These factors should give potential investors pause and make them approach this IPO with a healthy dose of skepticism.”