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Twitter Squeezes The Banks for IPO Debut

“Twitter Inc. is parlaying its surging popularity and the intense competition among banks for Internet deals to squeeze unusually favorable terms from the firms that will take it public.

The fees banks are set to collect for selling the shares—at 3.25% of the money raised, said people familiar with the deal—would be the lowest percentage paid on a U.S.-listed IPO in more than a year, according to Ipreo, a capital-markets data and advisory firm.

What’s more, the microblogging service is nearing completion of a $1 billion credit line from its bankers that it can use to help finance its growth, the people said. The credit is arriving even as Twitter is seen by some analysts as a riskier credit bet than some other Internet companies that went public in recent years.

The arrangement shows the power that high-profile Silicon Valley companies can command on Wall Street. In what has become a standard playbook for these companies, Twitter asked for credit from banks seeking to handle its IPO to lend it money, the people said. That setup enables companies to maximize the money they extract out of Wall Street at the time of their IPOs.

For some banks, agreeing to lend can be a way to establish a relationship with companies going public. When banks work on hot IPOs, they get bragging rights, and position themselves for plum roles in any future transactions the company does.

But the arrangement also means the banks must weigh the costs of providing credit for often-unproven companies against what can be meager IPO fees.

Facebook Inc. FB +0.12% paid an underwriting fee of 1.1% of the money it raised in its IPO last year while Pandora Media Inc. P +0.81% and LinkedIn Corp. LNKD -0.41% each paid 7% in 2011, according to Ipreo. Facebook still paid far more in total dollars because of the size of its IPO—$16 billion—compared with Twitter, which is seeking to raise $1 billion. The average spread for IPOs that have raised between $1 billion and $2 billion in the U.S. since 2001 was 4.6%, according to Ipreo.

Twitter initially tapped Goldman Sachs Group Inc. GS +1.26% to spearhead its IPO, and later added Morgan Stanley MS +1.12% and J.P. Morgan Chase JPM -0.02% & Co. to the circle of banks leading the deal. Bank of America BAC -0.28% Merrill Lynch and Deutsche Bank AG DBK.XE +1.33% also secured roles in the IPO. All of the banks also are providing credit to the company, people familiar with the discussions said….”

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