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Vonage Could Eat Consumer IPO Risk

Things have gone from bad to worse for Vonage Holdings Corp. and its underwriters since the firm went public last week. The Web telephony company just conducted the most unsuccessful initial public offering of the last two years that saw its stock plummet 26 percent in its first full week of trading. It's been so bad that Vonage may be forced into an unusual contingency plan that was spelled out in its SEC filings. Vonage says it will cover the cost for investors who balk at the agreements they made to buy shares during the IPO, letting its underwriters, Deutsche Bank AG, Citigroup Inc. and UBS AG, off the hook for losses incurred by the portion its customers agreed to buy. Vonage set aside 13.5 percent of its $531 million IPO aside for customers, an unusual move since large funds and investment banks usually purchase IPO shares. In the wake of its 26 percent first week slide, these customers may decide not to pay for and accept the delivery of the stock they requested at $17 per share (Vonage is now trading at $12.50). Ugh, what a mess--and Vonage can't and won't say anything as per the IPO quiet period, so its investors and underwriters are left wondering what happens now.

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