Monday, September 30, 2013

Government Shutdown Could Disrupt Twitter's IPO Timeline

The threat of a looming government shutdown has already sent stocks tumbling. Could it also trip up Twitter's IPO? The social media company wants to list its shares within a few months, according to reports, but a government shutdown would include the SEC and might interfere with those plans.

Twitter announced on September 12th that it had confidentially filed a prospectus (Form S-1) for an initial public offering. However, this was not the real beginning of the process: the company had filed the paperwork two months earlier, and was only making the announcement to get ahead of press leaks. News site Quartz reports Twitter planned to make its confidential filing public this week, with a goal of trading its shares sometime before Thanksgiving.

A potential government shutdown could upend this timeline, because a closing of the government would mean pausing a significant portion of the U.S Securities and Exchange Commission (SEC) and its duties.

"If the company is towards the end of the process and trying to price its transactions, it presents a lot of uncertainty and potential difficulties," said David Lynn, a partner with law firm Morrison & Foerster and former chief counsel at the SEC's Division of Corporation Finance. During a shutdown, he said, "no one can look at the final versions of the registration statement, and that has to happen before they can price and sell securities."

Lynn said that for companies earlier in the IPO process, a government shutdown would have less of an effect because they were in for a two-to-three-month wait from the SEC, anyway. "It can take two to three months to go through process or even longer depending on the issues. Companies that filed recently may have to delay [their] road show because the SEC isn't there to look at the filings," he said.

But for companies nearing the end of their IPO process and depending on the SEC to respond to queries quickly – companies like Twitter – could face a longer wait. "It might tack another week or two onto the process. Depending on if the shutdown goes for a week or two – it would tack on however long the shutdown would be," Lynn said.

Twitter did not immediately respond to requests for comment.

A confidential IPO filer is required to make a public filing at least 21 days before formally launching its offering. While Twitter's ultimate public debut will come, its preferred timeline could be derailed by D.C. if SEC functions are disrupted.

The SEC declined to comment beyond the statement listed on its website, which says that it "will remain open and operational in the event the federal government undergoes a lapse in appropriations on October 1." Any changes that occur on or after October 1 will be announced on the SEC website, and the agency's operation plan in the event of a shutdown is accessible here.

Should the government shut down, the SEC would remain open for emergency matters like temporary restraining orders, the investigation of matters relating to public and private property and market monitoring. It would be open for filings (EDGAR filings and others), but it would not be able to process those filings. "Ongoing litigation, rule-making, interpretative functions, anything that's not deemed an emergency gets shut down," Lynn explained.

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