Wira,In your fictional economy there is no dilution because the...

Wira,

In your fictional economy there is no dilution because the manager in question participated in the capital raising. The same would apply in any capital raising where a shareholder purchases additional shares in the secondary listing. Had the manager not bought shares then he/she would have been diluted.

Interestingly, the manager was actually diluted by the IPO, but he sterilised that dilution by participating in the capital raise himself in an equal proportion to his existing ownership pre raise. Therefore his post raising ownership remained the same, but this is only because he put additional cash into the new entity.

Funnily enough, the manager would be equally as well off if he priced the IPO at 20c, 30c or 40c, regardless of where the stock opens. Whatever he makes from underpricing the IPO (in the case of pricing it at 20c and it opening at 40c as you suggest) and participating himself, he will lose from his existing shares (generated from the spin off). This is intuitive because he has participated in the IPO with new capital in the same proportion to his existing ownership in the new entity, meaning that any gains on one side are offset elsewhere. The only way he can guarantee a big profit is to deliberately price the IPO too low and then soak up all of the new IPO with his mates, thereby screwing ATU shareholders whose spin off shares get over diluted for too little cash. Somehow, I do not think this is in the interests of management

Regardless off all this, I think they will price the IPO correctly and Kuro will open marginally higher than the list price. Time will tell.