Dutch auction

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Dutch auction

Auction in which the lowest price necessary to sell the entire offering becomes the price at which all securities offered are sold. This technique has been used in Treasury auctions. Often used in risk arbitrage. Auction system in which the price of an item (stock) is gradually lowered until it meets a responsive bid (government T-bills) or offer (corporate repurchase) and is sold. In a corporate repurchase, a range of prices is set by the company within which shareholders are invited to tender their shares. The tender offer is open for a specific period of time (i.e., 20 days), and the quantity of stock to be purchased is stated as well, subject to proration if more shares are tendered than can be legally purchased under the stated terms (often an additional amount equal to 20% of outstanding shares can be purchased). The price paid is that at which the amount stated to be purchased can be sold. Compare to double auction system.

Dutch Auction

An auction of a new issue of securities where the highest price offered to buy a portion of the issue becomes the price at which the entire issue is sold. Dutch auctions are particularly important because they are the means used to sell new issues of U.S. Treasury securities. A Dutch auction begins with the securities offered at a high price and the price is gradually lowered until there is a bid. This contrasts with a commercial option that begins at a low price that is gradually raised.

Dutch auction

An auction in which the seller reduces the offering price until a level can be found that clears the market. This is the price at which all sales will take place. The auction for Treasury bills is similar to this except that the Treasury accepts the highest bids first and works through progressively lower bids until an issue is completely sold. Thus, in a Treasury bill auction, various prices are accepted.
Case Study Whittaker Corporation announced plans in 1986 to sell several of its business units and use the proceeds to repurchase a significant proportion of its own outstanding stock. The stock buyback was to occur through a process by which Whittaker's shareholders could submit offers for varying numbers of shares at various prices. A shareholder might submit an offer to sell 500 shares at $35; 500 shares at $34; and 500 shares at $33, for example. Depending on the number of available shares and the prices offered by the shareholders, Whittaker would then set a price at which it would purchase the stock. Thus, if Whittaker set a price of $34.75, the shareholder would sell 1,000 shares (those offered at $34.75 or less) at a price of $34.75 each. Whittaker undertook the Dutch auction to determine the lowest price at which it could buy back the desired number of shares.

Dutch auction.

A Dutch auction opens at the highest price and drops gradually until there's a buyer willing to pay the amount being asked. The transaction is completed at that price.

The only securities auctions in US markets that are conducted as Dutch auctions are the competitive bids for US Treasury bills, notes, and bonds.

In contrast, a conventional commercial auction begins with the lowest price, which gradually increases as potential buyers bid against each other. The selling price is determined when no bidder will top the last offer on the table.

A double-action auction -- the system in place on US stock exchanges -- features many buyers and sellers bidding against each other to close a sale at a mutually agreed-upon price.

Dutch auction


Dutch auction

An auction in which the asking price is lowered gradually until someone is willing to pay at that level, and the property is then sold to that person. Contrast with the typical auction practice in which the auctioneer asks a high price,lowers it until someone places a bid,and then the auctioneer attempts to obtain higher bids to increase the price from there.

References in periodicals archive ?
Issuing companies like Dutch auctions because they are a way to get maximum value for their shares.
By broadening the pool of potential investors, Dutch auctions reduce the likelihood of a deal being an investor's bargain.
Interestingly, some companies using Dutch auctions under-price their clearing price on purpose to give investors a chance for a pop, albeit a more modest one.
Clayton, a supporter of Dutch auctions, notes, "An argument could be made that individuals get into offerings they shouldn't have entered because it's too easy [to get in].
The financial advantages of Dutch auctions to companies, based on the more accurate pricing touted by many proponents of the method, may also be overstated.
Some companies choose to integrate the Dutch auction into an overall repurchase plan.
For companies that want to elevate stock prices to keep them competitive, repurchase programs make for sensible solutions, and the Dutch auction is a good way to do it quickly.
For Peoples Heritage, the Dutch auction fits perfectly with its strategy to increase market share by growing the company profitably while creating shareholder value, Ryan says.
As site traffic has increased, the company has found the Dutch Auction to be more effective in a number of product categories than Top Bid auctions.