Goldman Sachs Cancels IPO

September 28, 1998 / 8:25 PM EDT / AP

Goldman Sachs & Co. abruptly canceled plans to dissolve its 130-year-old private partnership and sell a stake to the public, citing the turmoil in global financial markets that has reduced the company's potential value.

The decision announced Monday night by Wall Street's last remaining big private firm indicates what some of the most prominent investment bankers think about the prospects for a quick recovery of the hemorrhaging stock market.

"Our executive committee made this difficult decision after giving full consideration to the volatile state of global financial markets and the disproportionately negative impact on the financial services sector," Jon S. Corzine and Henry M. Paulson, the firm's co-chairmen said in a statement.

Goldman's six-member executive committee acted after consulting with the firm's 189 general partners. The firm had been widely expected to delay its initial stock sale from late October or early November. Instead, it withdrew the plan.

Corzine and Paulson indicated that Goldman Sachs hasn't abandoned aspirations to go public.

"When markets and other conditions improve, our executive committee may propose a new plan of incorporation and public offering to the partnership for approval," they said.

But deciding to go public, which was championed by Corzine and Paulson, hasn't been easy for the firm's partners. Goldman had considered the issue numerous times in the last 27 years and dropped it because it lacked broad support.

The merits of going public were exceptionally strong months ago -- when the decision was initially made -- because the value of securities firms was booming right along with the stock market. Lately, however, the market turned treacherous and securities companies have lost some luster.

Goldman has seen its profit decline and the firm predicted more problems going forward.

Even before the decision was announced, analysts said declining fortunes in the securities industry had reduced the incentive for Goldman to proceed now with an initial public offering, or IPO.

"They could do the deal but they just won't be able to do it at the price they wanted or a lot of people think they deserve," said John Keefe, an independent brokerage analyst in New York. " As a businessman that's a good reason to stop and think about it."

Securities companies are experiencing one of their worst quarters since late 1994. Some Goldman peers -- such as Merrill Lynch & Co., Morgan Stanley Dean Witter & Co. and Lehman Brothers Holdings Inc. -- have seen their share prices drop by half from their 52-week highs.

The decline in those companies stock market value is telling for Goldman Sachs. The firm, which recently reported a 19 percent drop in pretax profit for its third fiscal quarter, likely would see the $30 billion value placed on the investment bank earlier this year cut by half.

Goldman had hoped to sell a 0 percent to 15 percent stake to the public, raising capital and the preferred currency stock for acquisitions to compete with its ever-expanding and more diversified rivals.

The stock sale also would have brought a windfall to Goldman's partners -- who have equity stakes in the company and had expected to see their net worth almost triple -- and to some key employees.

The decision to withdraw the offering could pose a problem for Goldman. How does one of the biggest underwriters of initial stock sales recommend that its clients go public now if it indicates market conditions suggest that they stay still themselves?

"It's certainly going to be a question that their clients are going to ask," Ritter said.