From NY Times on "Quiet Periods". Seems it is kind of a "Grey
Area" legally. There is some talk of GOTO.
July 10, 1999
Internet Stock Offerings Are Quiet but for
the Shouting
By ANDY WANG
Some chatter on Wall Street this week disrupted what is customarily
a quiet period.
On Wednesday, Goldman, Sachs put the Network Plus Corporation, a
telecommunications company that offers high-speed data and Internet
services, on its recommended stock list with a price target of $30 a
share. Just a week earlier, Goldman Sachs had been the lead underwriter
of Network Plus's initial offering of common stock at $16 a share.
Donaldson, Lufkin & Jenrette, a co-manager of the $128 million offering,
also started stock coverage of Network Plus on Wednesday with a buy
rating. With the plugs from Goldman Sachs and Donald, Lufkin &
Jenrette, shares of Network Plus gained $1.375 on the day to close at
$23.375; they have since slipped back to $21.813.
The announcements raised eyebrows among investors and Internet stock
analysts familiar with what is called the quiet period, the time before and
after a private company goes public in which it and its underwriters are
prohibited from hyping the stock under Federal securities law. The
period is intended to give the market time to find an appropriate price
level for the stock.
It turns out, though, that Network
Plus already had publicly traded debt
and had been filing reports with the
Securities and Exchange
Commission, meaning it is not really a
newly public company. Therefore,
Goldman Sachs was not prohibited from commenting on the stock.
A spokeswoman for Goldman said Network Plus is nine years old and
well known and that the transaction was closed before the
recommendation; Donaldson, Lufkin & Jenrette officials were unavailable
for comment on Friday. Still, the investment banks' actions surprised
even the professionals.
"This is very unusual," said Ben Holmes, who tracks new issues for
Ipopros.com. "Obviously, Goldman Sachs knows the rules, and they're
playing within them."
But the restrictions on quiet periods are quite fuzzy. And while many
companies and their underwriters refrain from saying anything publicly
during the time immediately preceding and following their offerings, more
companies are saying more than they have in the past. Internet companies
in particular are eager to provide business progress reports and to
continue announcing deals, something underscored by recent comments
from Goto.com, Stamps.com and Digital Island, among others. "It's going
to be tough for companies in the Internet to be quiet," said Tim Klein, a
research analyst at U.S. Bancorp Piper Jaffray. "Promotion is a big part
of the game. People are trying to build a brand."
The quiet period, based in Federal securities law, has never been
translated into a specific rule by the S.E.C. But it is commonly
understood to start when a company hires an underwriter and to end 25
days after the company's initial public offering.
"We haven't developed a commissioned definition," said John Heine, a
spokesman for the S.E.C., adding that staying quiet is "up to the
companies' lawyers or people who advise them."
Holding back just seems too much for many Internet companies, whose
stocks can swing wildly because of day traders' fervor for the sector and
the relatively thin trading in each company's stock.
Consider Goto.com, an Internet search service that went public on June
18. Twelve days later, the company announced that it had attracted more
than 10,000 advertisers, 80,000 affiliate Web sites and an estimated 10
million unique users. "The increasing level of enthusiastic participation in
the Goto.com marketplace by our advertisers, network affiliate sites and
loyal users clearly demonstrates the need for our service and our success
in delivering it," Jeffrey Brewer, the company's chief executive, said in a
statement. Stock of Goto.com, which went public at $15, rose more than
18 percent to $28 a share the day of the announcement.
The next day, the stock soared $8.50 more after the company
announced a strategic partnership with the Netscape Communications
Corporation. In both cases, the company issued statements to the press.
An official for the company said he could not comment on the stock's
price, which is now triple its offering price at $48.9375, because he was
bound by the quiet period surrounding the offering.
Steve Harmon, senior investment analyst for Internet.com., sees no
problem with Goto's action. "If you are an investor, I think you want to
know those numbers," he said. "I think that's newsworthy."
As for Network Plus, he said that a stock recommendation by the
company's underwriter should be taken with a grain of salt since it was
biased and that its timing, whether days or months later, should make no
difference to investors.
Another case in point is Stamps.com, an online postage company, which
went public for $11 a share on June 25. Six days later, Mysoftware
Company, a direct marketer, announced a partnership with Stamps.com.
"Partnering with a high-caliber company serving small business such as
Mysoftware Company is a phenomenal way for the Stamps.com service
to reach the small business market," John Payne, the chief executive
officer of Stamps.com, said in a statement. Stamps.com's stock climbed
50 percent, or $11.25, to $33.50 the next day and closed Friday just
under that level.
"It's absolutely a standard announcement," said Jeffrey Green, the
co-founder of the company and vice president of marketing. "We've
shown a clear history of making these types of announcements."
Three announcements in quick succession led to a near tripling of the
stock price of Digital Island, which provides network services. The day
after its public offering of $10 a share on June 29, the company
announced that it had secured Paymentnet Inc., a payment processing
service, as a customer. Digital Island's stock promptly rose $6.0625 to
$17.9375. Digital Island next announced a deal to distribute content to
Bidcom, an Internet resource for builders.
The stock gained $11.4375, to close at $32.6875 on Tuesday after that
news. Then Webspective Software announced a partnership with Digital
Island, which pushed Digital's stock up $1.0625 to $33.75 on
Wednesday. The shares closed the week at $26.25.
A spokesman for Digital Island said on Friday that legal advisers had told
him not to comment on the stock's movement because of the quiet
period. Heine of the S.E.C. said regulators would not comment on the
actions of specific companies.
Keith E. Benjamin, managing director and senior Internet analyst at
BancBoston Robertson Stephens, said the number of announcements
around initial public offerings could be traced to the heavy volume of
Internet stock issues.
"There are too many of them," Benjamin said. "It's very difficult to rise
above the clutter. That requires big news."
To be sure, companies can find the quiet period exasperating. The
executives of Salon, an online magazine, have been the target of several
critics, including Michael Kinsley, the editor of a competing online
magazine, Slate. Kinsley wrote an April column saying that the numbers
in the company's S.E.C. filing differed greatly from what Salon's editor,
David Talbot, had been telling the media. Salon, though known for
distributing provocative opinions, has chosen not to respond because any
comments could be construed as a violation of the quiet period, Salon
executives have said.
On Wednesday, though, Salon announced an E-commerce deal with
Culturefinder Inc., an arts information and ticketing Web site. Shares of
Salon gained $1.8125, to close that day at $12.75, up from their $10.50
offering price of June 22.
Copyright 1999 The New York Times Company
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