Green Dot Sets IPO Terms (GDOT, WMT)

Prepaid financial services are coming back, a classic sign of the times that many people will be left with no credit at all or with very little credit for years.  Green Dot Corporation (NYSE: GDOT) has announced the terms of its initial public offering.  There is a Wal-Mart Stores Inc. (NYSE: WMT) benefit here as well, and this tie has helped Green Dot get to the rapid point of strength the company is in now.

Green Dot plans to sell 3.85 million shares of common stock, but all  the shares being sold are being sold by certain stockholders. The company has thrown out a price range of $32.00 to $35.00 per share for its IPO price.  That is rather high of a price range considering the pricing of most recent-day IPOs.

Green Dot has been approved to apply to list on the NYSE under the ticker symbol “GDOT” and the underwriting group has J.P. Morgan and Morgan Stanley as joint book-running managers, and Deutsche Bank, Piper Jaffray, and UBS Securities as co-managers.  The underwriters have listed the over-allotment option of up to an additional 577,500 shares.

The selling holders are listed as directors and executive officers as a group and backers of the company.

Green Dot is the exclusive provider of Walmart MoneyCards, which recently saw its agreement extended to May 2015.  Wal-Mart bought 2.2 million shares in June, but it is not selling them in the IPO.  With Green Dot buying Bonneville Bancorp of Utah, it could reopen the old controversy over Wal-Mart’s desire to sneak in the backdoor into the U.S. banking business after earlier attempts have been blocked.

The good news is that Green Dot already has a network of distribution and marketing relationships with many significant retail chains: Wal-Mart, Walgreens, CVS, Rite Aid, 7-Eleven, Kroger, K-Mart, Meijer and Radio Shack.  It is also profitable per the filing:

• “For the years ended July 31, 2007, 2008 and 2009, the five months ended December 31, 2009 and the three months ended March 31, 2010, our total operating revenues were $83.6 million, $168.1 million, $234.8 million, $112.8 million and $92.8 million, respectively. In the same periods, we generated operating income of $1.2 million, $29.2 million, $63.7 million, $23.3 million and $24.1 million, respectively. “

The big issue here is that the filing does not show Green Dot itself selling shares for the company coffers.  Investors sometimes overlook this when a company is already on stable ground.  In tougher times, investors do not really just want to see their funds heading just to help pay off the original backers.  As of March 31, 2010, before the Wal-Mart investment, Green Dot already had more than $100 million in cash on its books.  The company also had 3,373,396 GPR card activated as of March 31, which compares to 2,685,975 at the end of calendar 2009 and compared to 2,056,828 at the July 31, 2009 end of fiscal year period.

Keep in mind that there are two classes of common stock: A and B shares.  The A shares are the shares being sold to the public, and there are some differences where it comes to voting and conversion.  The breakdown for calculating the company’s value out there is as follows:

• Class A common stock offered by the selling stockholders: 3,850,000 shares;
• Class A common stock to be outstanding after this offering: 6,058,552 shares;
• Class B common stock to be outstanding after this offering: 34,381,129 shares;
• Total Class A and Class B common stock to be outstanding after this offering: 40,439,681 shares.

Green Dot may want to tack on a million or 2 million more shares in this IPO, and have the sales of those shares add to its balance sheet rather than to Sequoia and other directors and backers.  The only issue is that it might not need to with the numbers it already has put up.

JON C. OGG