2 Re-Posts from "Fibre Channel Future" thread:
To: George Dawson (1189 )
From: Kerry Lee
Wednesday, Apr 28 1999 7:39PM ET
Reply # of 1275
Brocade's underwriters are playing typical investment banker games..In order to make
an IPO successful, you need several key ingredients for marketing to both Institutions
and Retail aftermarket.First you pitch the deal during the roadshow to fund managers
based on conservative/cheap valuation..this entices funds to submit orders/indications of
interest for their maximum initial allotment. If the offering is 3.25 million shares, with 3
underwriters with the "juice" of Morgan Stanley Dean Witter, BT Alex Brown and Dain
Reuscher Wessels, they will likely generate orders coming out of roadshow of at least
10-15 million shares. However, there are only 3.25 million. Solution? Jack up the share
count by the "overallotment" portion ( usually no more than 500,000 shares ), limit the
size of everybody's orders ( Fund A wants 50,000 shares, they are only allowed to buy
20,000 at IPO price ) and RAISE the pricing range 1-2 weeks before the projected
IPO date ( Look at recent IPO's WEBT, VIGN, TUTS to see how the initial IPO
pricing ranges were jacked up before the IPO which gave the IPO's the aura of being
"HOT" IPO's ) . When I recently got in on WEBT IPO, the pricing range was $9-11 on
the IPO prospectus..2 days before the IPO, the price range shot up to $12-14 and the
final IPO price was $13. Day 1 WEBT debuted at $38, closed at $24, and is now $55
( high is close to $80 ).
Therefore, unless BRCD Mgmt really screws up the roadshow and unless the IPO
market dies, I envision that BRCD will be priced somewhere between $11-15. Why?
Because BRCD only has $10 million cash as of Jan 31/99 and their quarterly operating
expenses are very high relative to sales. Raising only $26 million ( 3.25 million shares x
$8 low end )only gives them 2 quarters of cash. They really want to raise $40+ million
as indicated in original S-1. Remember that the company only gets the IPO price and
they want the IPO price as high as possible. On the other hand, investment bankers (
underwriters ) want as low an IPO price as possible to make the IPO look good and
make them heroes with their other clients, the institutions. BRCD really wants the
offering price to be at least $13 which yields them the full $42 million they need as a
cushion to keep the doors open.
Realistic BRCD IPO scenerio: Price BRCD at $13..double on first day = $26 price x
25 million shares = $650 million market valuation for BRCD.
To: George Dawson (1205 )
From: Kerry Lee
Sunday, May 2 1999 3:03AM ET
Reply # of 1275
Go to: ipodata.com
This is a better website than IPO.com. You will find a quick, up-to-date summary of
each recently filed IPO's as well as new IPO's.
Look at the summary of both Brocade ( BRCD ) and Marimba ( MRBA ).
- BRCD uses Morgan Stanley and Alex Brown..so does MRBA
- BRCD has trailing 12 months revenues of $24 million, MRBA trailing 12 months
revenues are $17 million.
-BRCD has 25 million shares, MRBA has 22 million shares
- BRCD is offering 3.25 million shares in the IPO, MRBA offered 4 million shares
- BRCD preliminary pricing range is $8 - 10..In comparison, MRBA originally priced at
$13-15 range but jacked UP to $16-18 range on 4/28/99, then finally priced at $20 on
4/20/99.
- MRBA closed its first day as a public company at $60 3/4...a market capitalization of
$1.36 Billion. That translates to a Price-to-Sales ( PSR ) ratio of 80. PE is irrelevent
since MRBA lost $6 million in 1998.
You can bet that these savvy Wall St sharks will SPIN a great story on the BRCD
roadshow, EG: the hype/buzz surrounding Fibre Channel, SANs , how SANS are an
integral part of Internet growth ( eg MTIC and DoubleClick deal )and how one of THE
3 co-founders of SUNW, Andreas Bechtolscheim took Cisco to the cleaners with
Granite and and invested a chunk of his Cisco profits into BRCD.
- I would not be surprised to see BRCD IPO VERY successful and trade into the
$30-40 range in its first week.This would translate into BRCD market cap at $750
million - $1 billion. If BRCD does not perform hot out of the gates, then it would signal
that something is amiss at BRCD from a fundamentals perspective that the fund
managers have picked up something negative about BRCD during due diligence.The
month of May should be interesting..I would not be surprised to see BRCD announce
another OEM soon to boost the interest in the IPO roadshow...on the other hand, I'm
not sure if an OEM announcement prior to the IPO would violate the SEC quiet period.
Any lawyers care to comment?
PS - I would also not be surprised if BRCD foregoes the IPO and becomes
CSCO-captive..perhaps their strategy is to use the IPO as a bargaining chip to squeeze
a better price out of CSCO??
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