THE SKEPTIC: IPO Window Slammed On 2002
01 Jul 08:16
By Robb M. Stewart
A DOW JONES NEWSWIRES COLUMN
LONDON (Dow Jones)--It's hardly surprising to read that telephone directories
business Yell has joined the roster of companies shelving IPO plans.
It's a list sure to lengthen.
You don't, after all, need an MBA to have noticed the extreme volatility of
global equity markets in recent weeks. Nor the increased mistrust of corporate
accounting. Or even the waning expectations of a widespread earnings recovery
in the second half.
Even before the WorldCom (WCOM) scandal, when a narrow window opened for
stock flotations, the IPOs were pushed through at discounted prices in an
attempt to secure reasonably strong aftermarket trade.
EMEA region IPO volume, according to Dealogic figures, was down 54% at $9.2
billion in the first half against $19.9 billion a year earlier.
Punch Taverns (U.PCH) set the tone for its float by first pulling it, then
resurrecting it at the last minute at a sharp discount. HMV (U.HMV) and Detica
(U.DCA), both floated in May, remain below their offering prices. And Spain's
first IPO of the year, utility Enagas (E.EGS), had a dismal debut despite
expectations it would appeal as a defensive bet.
A painful backdrop for listing, to put it mildly.
Which is why investors should be wary of any company pushing ahead with a
flotation: an enticingly-low initial offering price in this market may hint at
desperation rather than confidence.
With home-improvement chain Focus Wickes (U.FWX) adding its name to the list
of stalled IPOs this week, it's unlikely fellow DIY chain Homebase will test
its luck. A spokesman Monday said it had never settled on a flotation. In this
market, it seems likely Homebase's advisers will looking at other options.
So why then is GUS (U.GUS) pushing ahead with plans to spin off its upmarket
clothing retailer Burberry, the last big-ticket float on the cards before the
summer ends?
Admittedly, in Burberry's favor is that it will be the only horse in the race
to lure investors with an IPO, particularly after fashion house Prada (I.PDA)
pulled its own for the third time in a year. And Burberry doesn't suffer from
the hesitancy investors appear to feel towards private equity offerings; its
parent isn't seen as needing the return on its investment so desperately.
But Burberry is already priced at a discount, with an indicative price range
valuing it at up to GBP1.45 billion versus earlier expectations of close to
GBP1.8 billion.
Could it be then that GUS foresees the door closing on its chance to spin the
business off?
Consumer spending looks at long last to be slowing, interest rates look set
to rise and recent comments from other upmarket clothing retailers isn't
inspiring. And there have already been doubts expressed about the interest in
Burberry, given the intense competition from rivals and seemingly faltering
interest in company's trademark plaid pattern.
And Burberry has aggressive expansion plans that may rely on cash raised from
a float, while GUS is likely more concerned about funding its core operations.
In short, the bears have this market tight in their paws. That likely has
slammed the window shut on an IPO market that was only briefly open this year
as it was.
Burberry's name may yet be added to the list of postponed floats. But what
will investors make of it, if it isn't?
-By Robb M. Stewart, Dow Jones Newswires; 44-20-7842-9294;
robb.stewart@dowjones.com
(END) DOW JONES NEWS 07-01-02
08:16 AM |
