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To: Grislee bear who wrote (38651)	1/30/2000 5:27:00 PM
From: Captain Jack	Respond to of 45548

O pricing game fattens company coffers By Denise Duclaux NEW YORK, Jan 30 (Reuters) - Wall Street newcomers are jockeying to pocket more money from their initial public offerings, after watching a bevy of start-ups leave billions of dollars on the table by pricing their shares below the value the market was willing to bestow on them. "I think companies are demanding this," said Irv DeGraw, research director at WorldFinanceNet.com. "They are not going to be stupid and want it all, but I think there is a push among stronger companies that they want to keep some of the money." Indeed, a hefty 48 percent of companies raised more money than planned in 1999 by pricing their initial public offering above the expected range, while only 15 percent priced below the anticipated range, according to Jay Ritter, professor of finance at the University of Florida. By contrast, roughly one quarter of companies priced above their expected range from 1990 through 1998, while about one quarter priced below, according to Ritter. And last Friday -- the IPO market's first busy day of the year -- the majority of Wall Street debuts moved to grab more cash by raising their expected price range, pricing above the band or hiking the number of shares offered. Interwave Communications International Ltd. <IWAV.O>, 724 Solutions Inc. <SVNX.O> and ST Assembly Test Services Ltd. <STTSV.O> are just a few of the companies that generated more capital by boosting the terms of their IPOs. Although far from new in the IPO market, the pricing game is becoming all the rage, forcing companies and underwriters to grapple with a phalanx of issues. Too low a price can keep companies from catching all the riches the market is willing to toss their way. VA Linux Systems Inc. <LNUX.O>, for example, priced 4.4 million shares at $30 last December in a deal that raised $132 million. But the shares opened at $300 on their first day of trade -- showing that demand was so hot the California software firm could have raised several times the amount it did. On the other hand, too high a price can cost underwriters lucrative clients. Underwriters routinely save large portions of IPOs for heavyweight customers who get the stock at the low offering price and hope to make money as the stock is bid up. A higher price for new issues could make those investors less willing to gamble. "It's the classic conflict of interest," said Kenan Pollack, money editor at Hoover's Online. "There is an issue about how to price competitively. The underwriters want the companies to have a great first day at the same time they want to keep hot clients." In addition, analysts warn a higher offering price will limit the stock's first-day gain, as the gap between the initial price and the trading value narrows. Firms opting for the higher offering price may have to forgo the publicity that tends to come with a record one-day gain, or "pop" as it's known on Wall Street. VA Linux, for instance, saw its stock rise eightfold from the offering price to close at 239-1/4 -- the biggest first-day gain of a U.S. IPO ever -- as investors snapped up the stock. Analysts caution that companies boosting the terms of their IPOs may misjudge investor demand and risk a "broken" IPO, with shares falling below their offering price. And shares priced at a discount can actually help a company. Start-ups often sell just a small stake, 11 percent in Linux's case, creating an artificial shortage that tends to boost the share price. One year after the offering, the companies typically sell an additional stake at a much higher price. Higher prices, though, can signal that avid bidders await the IPO and create more buzz than already surrounds the deal. "Last year there was a lot of gaming going on to see if they could create hype that there was this hot deal...the most extreme example was FreeMarkets," Ritter said, referring to the online business-to-business auctioneer that increased its price range to $40 to $42 per share from a prior $14 to $16. Although questions about IPO pricing seem to outweigh any concrete answers, the year 2000 promises to offer plenty of opportunity to find the science in the art of pricing shares. Wall Street is already gearing for a busy week with a number of hot companies set to go public, including Dobson Communications Corp., which provides cellular telephone services; Sequenom Inc., a developer of genetic analysis tools; Firepond Inc., which helps to integrate a company's e-commerce functions; Avanex Corp, which creates items designed to boost performance of optical networks; and Impsat Fiber Networks Inc., a provider of telecommunications network and Internet services in Latin America. ((New York Newsdesk (212) 859-1700)) REUTERS