IPO News--RedHerring:>>> the start of a summer rally
redherring.com
IPO week ahead: the start of a summer rally
Last week, the IPO market had one of its stronger weeks since the bottom all but fell out of the market in April. This is an encouraging sign as 20 companies are scheduled to come out of the gates this week.
Last week ended with a bang as Accelerated Networks (Nasdaq: ACCL), a Moorpark, California-based company that builds systems enabling service providers to offer bundled voice and data services over a single broadband network, saw its IPO more than triple in value. The stock opened at $33, well above the original $15 per share price, and it rose as high as $52.50 in mid-day trading before closing at $47.88 -- a 219 percent gain.
Internet infrastructure companies have been hot investments as of late, and although there are none on the calendar for this week, there are two offerings scheduled in another sizzling market segment: fiber optics. These two could stand out among next week's crowded field of new offerings. "It's the latest darling of the stock market," said Alex Paris, Sr., a senior analyst at Barrington Research Associates in Chicago. "Fiber optics is one of the hottest areas of the market right now."
TO THE STRATOS SPHERE?
One of the companies looking to ride this current demand for optical companies will be Stratos Lightwave (proposed symbol, Nasdaq: STLW), the spin-off from Methode Electronics (Nasdaq: METHA). The 8.75 million shares offered by Lehman Brothers (NYSE: LEH) is expected to raise about $136 million for Methode, which priced the offering at a range of $16 to $18 per share.
However, investors will need to keep in mind that this offering only represents 15 percent of the total shares outstanding. The remaining 85 percent of Stratos will be retained by Methode, which plans to distribute the shares to its shareholders over the next 6 to 12 months.
Consider what happened to Palm (Nasdaq: PALM) as a guide to how this offering might play out. Like Methode, Palm only released a portion of the IPO shares onto the market and retained the remainder of the offering. It plans to distribute the rest of the shares next month to shareholders of 3Com (Nasdaq: COMS), Palm's parent.
The results of this strategy proved mixed for Palm, which saw strong demand for the relatively small amount of stock drive the price up more than 300 percent on the first day of trading, before sinking back down below the offer price in less than six months.
The spin-off plan of Methode is the subject of much discussion at a number of companies with fiber optic divisions, and there are rumors that Lucent Technologies (NYSE: LU) may follow Methode's lead later this year.
FIBER OPTICS FROM QUEBEC
The hot fiber optics theme will also be evident with a deal from across the border -- the $126 million offering from the Vanier, Quebec-based Exfo Electro-optical Engineering (proposed symbol, Nasdaq: EXFO).
Founded in 1985, Exfo is not quite the typical company (or dot-com) that investors are accustomed to seeing come down the IPO pipeline. With 650 employees, and products distributed in more than 70 countries, Exfo is very well established and is actually profitable. Exfo earned $4.5 million in 1998, and its net income increased 29 percent to $5.8 million last year.
The six million share offering from Merrill Lynch (NYSE: MER) was priced at a range of $20 to $22 per share and is set to begin trading at the end of this week.
MOSCOW CALLING
The international focus in the IPO market over the last few weeks continues this week, but jumps from Asia to Russia with the $330 million offering from the Moscow-based Mobile Telesystems (proposed symbol, NYSE: MBT).
Although the 15 million shares, underwritten by Deutsche Bank Alex. Brown, were recently revised from a price range of $21.43 to $23.75 to a lower range of $19 to $25 per share, the demand for the offering is still expected to be strong among investors.
With only Vimpel Communications (NYSE: VIP) currently serving as the main player in mobile communications in Eastern Europe and Russia, the market is clearly growing as mobile phone prices fall and the phones become more available to a wider portion of the population. But with the ongoing political instability in Russia, there is still a much less predictable economic situation than many U.S. investors are accustomed to seeing in the financial markets. Despite this concern, analysts are looking for a good reception for this offering.
A DIVINE INTERVENTION?
As the IPO market continues to recover from its slump, the one sector that may benefit the most might be the Internet incubator companies. One of the smaller players in the incubator segment is Divine Interventures (proposed symbol, Nasdaq: DVIN), which hopes to raise $214 million with its 14.3 million share offering from Donaldson Lufkin & Jenrette (NYSE: DLJ), for which shares are priced at $13 to $15 per share.
The Lisle, Illinois-based company hopes to move into the market at a time when the IPO environment is starting to perk up again. If the IPO market does return to better days, Divine Interventures could be in a good position to grow as the incubators in their nest of companies grow too.
With incubators' success directly linked to the success of their partner startup companies, the slide of the IPO market sent the stock value of the top firms like CMGI (Nasdaq: CMGI) and Internet Capital Group (Nasdaq: ICGE) sliding to near record lows.
"This is a pretty classic pattern for these companies when the IPO market is down," says Ullas Naik, senior vice president for research at First Albany in Boston. Despite the slump in these incubators' stock prices, Mr. Naik expects the IPO market to begin coming back at the end of the Summer. "Then we'll see these guys rocking again."
OTHER IPOS OF NOTE
Accord Networks (proposed symbol, Nasdaq: ACCD), the Petah Tikva, Israel-based company that manufacturers video conferencing systems, hopes to raise $60 million with its five million share offering priced at $10 to $12 per share. Netease.com (proposed symbol, NYSE: NTES), one of the leading Internet portals in China, expects to raise $76 million with its 4.5 million share offering of American Depository Receipts priced at a range of $14 to $17 per share. Marvell Technology (proposed symbol, Nasdaq: MRVL), the Sunnyvale, California-based provider of integrated circuits, wants to raise $60 million with an offering of six million shares priced at $9 to $11 per share. StorageNetworks (proposed symbol, Nasdaq: STOR), the Waltham, Massachusetts-based company that designs data storage systems for Internet customers, intends to raise $162 million with its nine million share offering priced at $17 to $19 per share. Precise Software Solutions (proposed symbol, Nasdaq: PRSE), the Savyon, Israel-based software company, wants to raise $63 million with its offering of 4.25 million shares priced at $14 to $16 per share.<<< |
