A market cap of $2.1 billion does seem a bit excessive, particularly given that their revenues for the first quarter were only $4.6 million.
biz.yahoo.com
Wednesday June 28, 6:43 pm Eastern Time
Bigger StorageNetworks IPO creating a Wall St buzz
By Brian Kelleher
NEW YORK, June 26 (Reuters) - The anticipated initial public offering of StorageNetworks Inc. grew in stature on Wednesday after the deal's price range was raised, indicating strong demand for shares of the data storage company, expected to begin trading on Friday.
``In this market, (to have) the right product, the right underwriter, the right basically everything and to then add a price increase into the equation, that becomes a no-brainer,'' said David Menlow, president of Millburn, N.J.-based IPOFinancial.com.
On Wednesday, the price range for the nine-million share IPO was raised to $23 to $25 a share from $17 to $19 a share, which would allow the Waltham, Mass.-based company to raise $216 million if the deal prices in the middle of range.
``When you see a price increase like this, everybody knows the momentum is solidly in place for the short term and you can expect a very solid opening premium on it,'' said Menlow.
StorageNetworks is creating a fiber optic network that will allow companies to store a ``virtually unlimited'' amount of data it will have access to over the Web, the company said in its Securities and Exchange Commission filing.
Goldman Sachs Group Inc. (NYSE:GS - news) , the lead underwriter on the deal, holds a 14.5 percent stake in StorageNetworks prior to the offering, while Dell Computer Corp.(NasdaqNM:DELL - news) owns 6.6 percent, the filing revealed.
The company does have some sceptics, despite the positive buzz being generated by the heightened deal.
``The question is will companies buy (their service)?'' asked Carl Howe, research director at Internet research firm Forrester. ``Quite frankly, (company CEO) Peter Bell and I disagree. He says yes, and I have data that says no.''
A Forrester poll of 50 large-company information technology (IT) managers revealed that none of them were interested in outsourcing their data services, said Howe, admitting that the targets in the poll are the, ``kind of guys that are hard to sell.''
The managers cited the risk of putting the responsibility of data storage in another firm's hands, Howe said, versus the upside of saving some money.
``It's just not worth the risk,'' Howe said the managers concluded.
Yet industry watchers contend that the market for data storage is large and ripe with growth opportunities.
``At this point, it is of critical importance to understand the growing pool of storage demand,'' said Menlow.
Most companies need the storage, ``but don't want to get involved,'' he said, which leads to demand for the services offered by StorageNetwork.
On Monday, the firm filed an amended prospectus with the SEC to add the news that on June 21, the company received a letter from storage equipment provider EMC Corp.(NYSE:EMC - news) alleging improper activity on behalf of StorageNetworks.
The letter alleged the company falsely identified EMC as an investor, misappropriated confidential EMC information and violated an agreement to avoid targeting EMC employees for hire.
``We believe EMC's allegations are without merit and intend to defend vigorously any legal proceedings which EMC might commence against us,'' StorageNetworks said in the filing.
EMC has not filed any legal action against StorageNetworks and a spokesman for the Hopkinton, Mass.-based company would not speculate on the possibility of future proceedings, or go into further details on EMC's claims.
Despite making the terms of the dispute public, StorageNetworks has managed to escape any negative repercussions as the deal's price range was raised after it revealed the allegations.
``I don't know that (the EMC situation is) going to be material to derailing the offering,'' said Menlow, who remains bullish on the deal.
StorageNetworks has applied to trade on the Nasdaq under the symbol ``STOR'' (NasdaqNM:STOR - news) With 88.2 million shares outstanding after the IPO, the company would have a market capitalisation of over $2.1 billion, based on the $24 middle-of-range offering price. |
