Direct Focus to quit TSE,
head south
Moving to Nasdaq: U.S. underwriters
insist on shift for new share issue
Amanda Lang
Financial Post
NEW YORK - At the insistence of its U.S. underwriter, a company
that grew up on the Toronto Stock Exchange is delisting in favour of
the New York-based Nasdaq exchange.
The move by Direct Focus Inc. comes as Canadian stock
exchanges are planning to merge to improve their competitive
position in the face of pressure from rival U.S. exchanges and online
trading.
Direct Focus is a U.S. firm based in Vancouver, Wash., and first
listed on the TSE in January 1993.
One of the company's early champions was Sprott Securities' chief,
Eric Sprott. "There is a bit of a 'see you later' attitude about this,"
Mr. Sprott said about Direct Focus's decision to abandon the
Canadian market.
The company specializes in direct marketing of home fitness
equipment, including the Bowflex and Nautilus brands, and a "sleep
system."
As its business has expanded over the past few years, its stock has
risen impressively, from $1.60 in early 1997 to $23 at the end of
last year. It now trades around $35, giving the company a market
capitalization of $330-million.
The company's sales have jumped from $6.5-million in 1995 to
$88.8-million at the end of 1998. It was profitable throughout that
time, and at the end of last year showed net income of $2 a share.
Mr. Sprott said that, alongside management and employees of
Direct Focus, the company's stock is owned by several large
Canadian investment funds.
But when the company decided to issue shares to raise working
capital, it opted to do so on the more liquid Nasdaq market.
Its underwriters, D.A. Davidson & Co. and First Security Van
Kasper, helped it file for an offering of one million shares at about
$20 (US) a share.
But the U.S. underwriters insisted that, as part of the transaction,
Direct Focus delist in Toronto.
It intends to do so this Thursday, after it begins trading on Nasdaq.
"I don't know what the practical reason is, except that someone
wants the trading to funnel through one market," Mr. Sprott said.
"We don't know if there's a market yet," for the shares on Nasdaq.
In fact, the U.S. underwriters admit as much in the company's
offering prospectus: "Prior to the offering, there has been no public
market in the United States for the common stock of the company.
Consequently, the public offering price for the common stock
offered hereby will be determined through negotiations among the
company and the [underwriters]."
The company and its underwriters were not available for comment
as to why a U.S. listing requires a delisting in Canada.
"My view has always been that we should let the stock trade in
Toronto, and see where the volume of trade migrates. I saw no
sense in rushing in to a delisting," Mr. Sprott said.
Direct Focus expects to raise up to $17-million (US) in the offering,
which it will use for general working capital. |
