Tuck, Old, but Idon't remember seeing this before.
PerkinElmer takes out insurance on Genomic IPO
By Gracian Mack
Redherring.com, April 12, 2000
PerkinElmer is engineering a deal as rare in the capital markets as the Vancouver Island marmot. For investors, the upcoming initial public offering of "callable common stock" in Genomic Solutions (Proposed Nasdaq symbol: GNSL) comes with a rare insurance policy, according to some experts in the field.
Genomic, a maker of software and measurement devices used in gene and protein research, plans to offer 5 million shares of callable common stock for between $17 and $19 per share. The offering is structured so that PerkinElmer has the right buy all of the outstanding shares at a 20 percent premium to the market value of stock. The rights are good for two years.
Say Genomic stock is priced at $19 per share. If the stock goes up, investors get the immediate capital appreciation, plus a guarantee that if PerkinElmer calls the stock (not likely while the stock is rising), holders would get whatever the stock price is on a given day and an additional 20 percent.
If the stock goes down -- to say $5 per share -- holders will have lost the $14 dollar difference from the purchase price, but the decline to $5 would make it more likely that PerkinElmer would call the stock and pay out $6 per share.
"PerkinElmer is more likely to exercise the call option long before the stock goes that far," says Dr. Jay R. Ritter, professor of finance at the University of Florida. "As the stock declines, PerkinElmer's call could stimulate buying and drive the stock back up."
"PerkinElmer got the call rights when they bought a privately placed preferred stock issue a little while back," says John Bligh, syndicate manager at Punk, Ziegel and a comanager on the proposed IPO.
Indeed, in December PerkinElmer paid $6.30 each for a little over a million shares of Genomic preferred stock, giving the company a 7.7 percent equity position. When the Genomic IPO begins trading, those shares immediately convert into callable common stock.
"So, no matter what happens, PerkinElmer will have made their money," explains Dr. Ritter, pointing out that even if the issue trades its first day at a flat $19 per share, PerkinElmer will scoop up a 200 percent premium over the $6.30 purchase price of their shares.
Other institutional investors who will benefit from a capital gain but not the callable option are Chase Capital Partners, which holds a 29 percent pre-IPO equity stake, and American Healthcare Fund II with an 11 percent pre-IPO position.
IPO INSURANCE
Some analysts say the unique deal gives PerkinElmer several paths to profitability in their investment.
"At the worst, PerkinElmer could gather up what it considers to be undervalued shares of Genomic and spin them out again at a higher valuation, similar to what Roche (London SEAQ: ROCZ) did with Genentech (NYSE: DNA) recently," says Brian Kim, an associate analyst at Bear Stearns (NYSE: BSC).
Mr. Kim is referring to Roche and its holdings in biotech leader Genentech. On June 14, Roche, which held about 70 percent of Genentech's stock, announced it would exercise its option to purchase the company's remaining shares. It did so on June 30 for $82.50 per share.
In mid-July, Roche offered nearly 17 percent of Genentech's shares back to the public in an IPO at $97 per share. Then on October 20, Hoffman-La Roche sold another block of shares in a secondary offering at $143.50 per share. Consequently, Roche now holds roughly 66 percent of Genentech's shares and is richer than it was last June.
With all of PerkinElmer's maneuvering, it is easy to forget that Genomic also stands to gain big on the IPO. Currently the company plans to raise as much as $95 million in proceeds from its IPO. That's cash it can put to use right away. For the year ended December 31, Genomic lost $11 million on $12 million in sales.
Warburg Dillon Read, acting as the lead manager of the deal hasn't announced timing for the IPO yet, but Dain Rauscher Wessels (NYSE: DRC) and Punk Ziegel are the comanagers.
With the 20 percent premium guaranteed, Genomic might "represent one of the better deals in this volatile climate," says Dr. Ritter. "It certainly looks like a great deal for PerkinElmer."
SMH |
