the first draft of an offer to sell securities that describes its characteristics, except for price, delivered as part of the registration statement to the SEC and used to attract potential investors. Also called a preliminary prospectus. Show
Since you're reading about SIE: Red Herring, you might also be interested in:The Red Herring Prospectus is a preliminary document drafted by companies during the initial stages of undergoing an initial public offering (IPO). Red Herring Prospectus — SEC IPO FilingThe red herring can be thought of as the preliminary first draft that precedes the final prospectus. Companies attempting to raise capital by issuing new equity securities to the public market must receive regulatory approval from the Securities and Exchange Commission (SEC). Before a company can undergo an initial public offering (IPO) — i.e. the first time that the company’s equity is offered to the market — its final prospectus must first be approved. Often called the S-1 filing, the final prospectus contains all the necessary information about a public company’s proposed IPO so that investors can make better-informed decisions. SEC regulators often request additional material to be included in the prospectus, which ensures that the document provides as much transparency as possible. But prior to the release of the official prospectus, a document referred to as the “red herring prospectus” is circulated with institutional investors in the early stages of the IPO process. The red herring, also known as the preliminary prospectus, provides potential investors — mostly institutional investors — with the details surrounding a company’s upcoming IPO. A company’s red herring prospectus provides investors with insight into the general background of the company, its business model, its past financial results, and management’s future growth projections. Red Herring Prospectus vs. Final Prospectus (S-1)Compared to the final prospectus (S-1), the red herring prospectus contains less information because the document is intended to be amendable. Most notably, the issuance price of each share and the total number of shares offered are missing. The red herring prospectus is shared among a select number of institutional investors who will provide feedback to the company and its team of advisors specializing in the equity capital markets. The support of these institutional investors is frequently necessary to the company (and can shape the final prospectus), so changes are usually made in order to cater to their specific interests. Since the red herring is a preliminary document, there is still sufficient time for changes to be made based on any feedback received from investors and the SEC. Since the final prospectus incorporates any such feedback, the final prospectus formally filed with the SEC for confirmation is more detailed and complete. Before the final prospectus filing (S-1), the red herring is shared among institutional investors during the quiet period of the “road show”, i.e. the period during which a company sets up meetings with investors to gauge their interest and their thoughts around the proposed offering’s terms. That said, the general purpose of the red herring preliminary prospectus is to “test the waters” and make adjustments as needed. Once the company files its final prospectus — assuming the SEC has given its stamp of approval — the company can proceed with “going public” via the IPO and issue new equity securities to the public markets. Sections of the Red Herring ProspectusThe structure of the red herring prospectus is virtually identical to that of the final prospectus, but the distinction is the latter is more in-depth and considered to be the “official” filing. The table below describes the main sections of the preliminary prospectus.
Red Herring Example — Facebook (FB) Preliminary FilingAn example of a red herring prospectus can be viewed by clicking on the linked button below. Facebook (FB) Red Herring This example prospectus was filed in 2012 by Facebook (NASDAQ: FB), the social networking conglomerate now doing business under the name “Meta Platforms”. The red text in the screenshot below emphasizes that the preliminary prospectus is subject to change and the terms are not fixed, i.e. there is still room for improvements based upon feedback from potential investors or required adjustments per SEC guidance. Moreover, the text above the red text states the following: Facebook Example |