Green Shoe Option
A provision in an IPO that allows underwriters to buy additional shares at the offering price, often used to stabilize stock prices; relevant in M&A when companies go public to finance deals.
Implications
A provision in an initial public offering (IPO) that allows underwriters to buy up to an additional 15% of the company's shares at the offering price, providing stability to the stock price by preventing oversubscription or shortfalls.
Example
Example: During its IPO, a tech company includes a green shoe option, allowing underwriters to purchase extra shares if demand exceeds expectations, helping to stabilize the stock price after the public offering.
Related Terms
Different from standard share allocations in an IPO, the green shoe option provides flexibility to underwriters, allowing them to adjust the supply of shares based on market demand.
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