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Spotify has avoided the traditional route to becoming a public market company at every stage. Listing day is going to be no different.

A successful trading debut Tuesday for the music-streaming company won’t be judged on whether the shares jump 30 per cent -- the usual benchmark for a triumphant initial public offering. Instead, Spotify Technology SA and its advisers would prefer a less exciting outcome for its unusual direct listing, according to people familiar with the matter.

For Spotify, a favorable first day won’t be defined by how much the share price climbs from the open to the close, said the people, who asked not to be identified because the matter is private. Instead, its goal is to have the stock look like it would on a run-of-the-mill day -- with shares trading efficiently with little volatility as soon as possible.

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Investors may have to wait a while to see if Spotify can pull off its dream of a stable, low-drama listing. It could take hours after the market opens for shares to find a comfortable trading level and establish a valuation, the people said. As of 10:35 a.m. in New York, the shares were indicated to open between $145 and $155 apiece, according to data compiled by Bloomberg.

Throughout the process, Chief Executive Officer Daniel Ek has said Spotify chose a direct listing to avoid “the pomp and circumstance” of an IPO. Still, the company has drummed up the most noise around a non-IPO listing since Google Inc. sold stock in a Dutch auction, in which investors submitted bids over the Internet, fax and telephone. And Spotify is poised to be of a comparable size as the search behemoth when it listed.

While Spotify’s exact valuation won’t be determined until the shares open, the stock is likely to trade at a market value of about $25-billion, the people said. Spotify declined to comment.

The best-case scenario would be modest intraday movement with trading volume similar to a typical IPO, in which 50 per cent to 100 per cent of tradable shares change hands, the people said. The worst would be a stock that swings wildly or lacks the available shares to trade smoothly.

In a traditional IPO, a set number of shares are sold at a specific price to a known list of investors before trading starts. Spotify’s not doing that. Instead, the company’s first public share price will be determined after the opening bell by the supply of shares that existing holders are willing to sell, as well as demand for them.

Spotify and its advisers can’t control every step of the process. The London-based company is going public amid volatile trading conditions for tech companies which saw the Nasdaq 100 fall 2.9 per cent on Monday as the Cboe Volatility Index -- a key measure of market risk -- jumped to 23. The concerns driving broader index slides, including fears of a trade war as well as President Donald Trump’s Inc. rhetoric, aren’t expected to affect Spotify’s first day of trading, the people said.

Share Float

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The portion of shares that can be floated is much greater than in an IPO -- about 90 percent -- and, except for Tencent Holdings Ltd., there’s no lockup period. That means insiders don’t have to wait months to sell their holdings. As of March 21, Spotify had 178.1 million ordinary shares outstanding, according to a filing. While almost all existing ordinary stock holders can sell, none of them have to.

Spotify’s stock is getting off the ground with the help of advisers Goldman Sachs Group Inc., Morgan Stanley and Allen & Co. and designated market maker Citadel Securities LLC.

With the direct listing, there’s no bank acting as a stabilization agent, the firm that oversees price setting and has the ability to help buoy a tumbling stock by buying shares. Instead, Morgan Stanley has been mandated to help Citadel Securities determine the open price, based on supply and demand intel gleaned from conversations with existing and potential investors.

In a typical IPO, the supply side of the equation doesn’t usually change much. The company and potentially a few existing shareholders offer a set number of shares at a valuation they think the market will bear. Then underwriters hammer out how many shares investors want and at what price.

No Guarantee

Spotify’s advisers have had to work a long list of existing investors to try to discern whether they might sell and at what price, with no guarantee that they won’t change their minds. Those conversations with investors -- venture capitalists, institutional investors and family offices -- took more than six weeks, the people said.

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The advisers have done the same with potential buyers, the people said. In addition to the familiar conversations about share price, they’ve discussed the process itself and how to get shares in a tradable format, with buyers and sellers having the correct accounts.

A key aim has been to get existing shareholders who want to sell to agree to do so as quickly as possible, even before the opening price is set, the people said. That could help manage volatility and generate sufficient supply to ward off a liquidity squeeze, which could lead to a shortage of shares and a run up in the price.

The trading desks at Morgan Stanley and Goldman Sachs are expected to see a lot of the transaction volume after Spotify’s shares start trading, the people said.

Spotify has tried to guide investors in its listing prospectus by disclosing the wide range of values at which shares have sold in private transactions. In 2017, the company’s valuation ranged from $6.3-billion to $20.9-billion for the 12.8 million shares that changed hands, based on the stock price and shares outstanding listed in the filing. This year, the valuation has been calculated at $8.7-billion to $23.6-billion for the 7.9 million shares that traded.

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