IPO VIEW - Wall St to retest weak IPO market with 5 deals
By Jake Keaveny
NEW YORK, July 21 (Reuters) - After a tumultuous several weeks, Wall Street bankers are ready to test the market for new shares -- again.
Hoping to salvage what's left of a slow summer, five companies are lined up to go public this week. That would be the most initial public offerings in four weeks -- if there's enough demand from investors to go around.
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Coming off several particularly brutal stock sessions, bankers are playing it as safe as possible. The IPO candidates being pitched represent an array of industries, from Canadian aerospace contractor Dunlop Standard Ltd to Dallas movie theater operator Cinemark Inc.
Each of the companies has a combination of the elements that investors are demanding in this down market: rapid growth, profits, cash flow, a long track record, and a strong position in a dynamic industry.
"In a market like this the goal of the investor is to take as much risk out of the trade as possible," said Tom Ortwein, the head of equity capital markets for CIBC World Markets. "If a deal is high quality, I feel it can get done."
With most fund managers busy selling shares, not buying them, persuading investors won't be easy. Over the latest four-week period, just four companies have managed to go public, with at least that many postponing sales.
Investors passed on two of the year's largest IPOs, the sales of Merck & Co.'s Medco Health Solutions unit and St. Paul Cos reinsurance unit Platinum Underwriters Holdings, both of which were put off indefinitely.
Last week, bankers were only able to launch one IPO, burger chain Red Robin Gourmet Burgers, in one of the slowest weeks this year.
PRICE SLASHING
One trend is becoming clear: to lure investors many companies are being forced to slash their offer prices.
As the broader stock market falls, the valuations of companies that IPO candidates are measured against are declining also. While stocks in general have dropped all year, the pace has quickened -- the Standard & Poor's 500 Index, a broad measure of stocks, plummeted 14 percent in the last four weeks alone.
All four of the successful IPOs in that time made 11th hour price cuts of between 15 percent and 50 percent (if measured from the medium of the expected range originally put forth in regulatory filings).
It's also telling that three of this week's sales -- Dunlop, Cinemark and computer education company LeapFrog Enterprises -- are slated to launch on the New York Stock Exchange, which has much higher financial requirements for companies than the Nasdaq.
Three IPOs would be the busiest week since early March for the NYSE.
STACK 'EM UP
Investment bank Lehman Brothers (NYSE:LEH - News) expects to help both Cinemark and Dunlop Standard sell shares on Tuesday.
Plano, Texas-based Cinemark hopes to have the same success that rival Regal Entertainment did last May. Regal is still up by 3 percent despite a rout in the market overall.
The 12-year-old company, which operates 278 theaters throughout the United States, Latin America and elsewhere abroad, boosted its net income to $6.8 million during the first quarter from a $2.7 million loss during the same quarter last year. It plans to sell 11.1 million shares for between $17 and $19 each.
Dunlop, which sells aircraft repair services and overhauls turbine engines, hopes to benefit from increased U.S. defense spending. The prospects for lucrative government contracts has caused defense-related companies to rally, and made defense IPOs among the hottest performers this year. Dunlop plans to sell 19.5 million shares for between $17 and $19 apiece.
Also on Tuesday, Merrill Lynch (NYSE:MER - News) expects to launch regional airliner Republic Airways Holdings. The Indianapolis-based airline, which operates under code-sharing agreements with American Airlines parent AMR Corp. (NYSE:AMR - News), has been profitable during its last two fiscal years.
On Wednesday, Merrill Lynch and Salomon Smith Barney (NYSE:C - News) expect to help sell 9 million shares of LeapFrog for $13 to $16 per share.
The Emeryville, California, developer of technology-based education tools has more than quadrupled revenues since 1999. In the first quarter the company lost $5.1 million compared to a loss of $8.5 million in the first quarter of last year.
Also on Wednesday, Credit Suisse First Boston plans to help sell 5 million shares of Boston-based property and casualty insurance provider Safety Insurance Group for between $16 and $18 a share. |
