Telecom in general is a coiled spring (again).
Check out this article on GBLX. Note the part about the business plan:
Nasdaq Woes Force Cutback
In Global Crossing Stock Issue
By SUZANNE MCGEE
Staff Reporter of THE WALL STREET JOURNAL
One of the year's biggest stock issues had to be restructured and pared back in order to entice investors, a sign of how the Nasdaq Stock Market's pullback is beginning to take its toll on financing markets.
Global Crossing Ltd., the Bermuda-based telecommunications company whose stock trades on Nasdaq, Tuesday had planned to raise $3.25 billion through the sale of 58 million shares of common stock and convertible securities, according to filings with the Securities and Exchange Commission. But the company, in response to the turbulent moves on Nasdaq that included another triple-digit decline Tuesday, restructured the deal late in the day -- and raised only $2.42 billion, more than 25% below what it had hoped to reap from the transaction.
The issue, although not an initial public offering, nevertheless reflects the wary attitude of stock-market investors toward putting new capital to work in this volatile climate. That wariness has been reflected in some of the problems that the IPO market -- dominated by tech and telecommunications stocks -- has been having.
Global Crossing trimmed the size of its common-stock issue to 43 million shares, even after the stock price itself had slumped more than 20% from the time the prospectus was filed March 31. And while it raised the size of the convertible offering, that issue was priced at terms that convertible-market participants said were very favorable to investors. The company also had to grit its teeth and price at only $33 a share, well below the $43 the stock fetched March 30, prior to the SEC filing.
Still, Global Crossing officials declare they were generally happy with the way the deal went.
"Obviously, we'd have been much happier if we could have sold the stock in a stronger market at a higher price," says Dan Cohr, chief financial officer of the company. "But it's a very, very difficult market. We don't know where the market is going tomorrow, and [we wanted] to make sure we had enough capital to finish building our network."
The performance of Global Crossing shares on Nasdaq Tuesday seemed to signal that the last-minute maneuvering helped. The stock, the second-most active on Nasdaq, with 45.7 million shares changing hands, ended the day at $33 -- matching the new issue price and off only 6.25 cents from Monday on a day when the Nasdaq fell 3.16%.
"In this environment, whenever you set out to raise money, you have no idea what the market conditions will be when it's finally time to price your deal," said Paul Cook, manager of Munder NetNet fund, a closely watched mutual fund that invests in technology stocks. "It's very, very trying for companies that need cash."
Since March 20, when the market turbulence began to unnerve underwriters, 15 IPOs or follow-on stock offerings have been withdrawn or postponed, all but two due to market conditions, according to CommScan, which tracks IPOs and other securities issues. In three IPOs and 13 follow-on stock issues, Wall Street underwriters have cut the number of shares being offered. And two recent IPOs -- for LivePerson Inc., which develops Internet customer-service technology, and DDi Corp., an electronics-design company -- have priced below their marketing range, an unusual step in the IPO market. Generally, underwriters would rather cancel a transaction than price it below the range.
"In the last two weeks, we've gone from being in a seller's market to a buyer's market," said Michael Tiedemann, head of the stock syndicate desk at J.P. Morgan Securities. "It was trending that way anyway, but last week's incredible market moves really spooked everyone."
The new-issue market started the week with a handicap. Of about 50 transactions -- IPOs, follow-ons and convertible securities -- scheduled to be priced this week, about a half-dozen were left over from last week. Last week, said Michael Curtis, head of the syndicate desk at Morgan Stanley Dean Witter & Co., only 32 deals out of 50 were priced -- and 18 of those happened on Thursday alone, when the market rebounded.
"This is a much tougher week," Mr. Curtis says. "It will be a real challenge to get things out the door."
To ensure that Global Crossing completed its financing, Wall Street underwriters, led by Goldman Sachs Group Inc. and Citigroup Inc.'s Salomon Smith Barney, restructured the deal. First, they trimmed the size of the common-stock issue, even as the share price slumped. Instead of the company and a group of shareholders each selling 29 million shares, they sold 21.5 million shares each. To compensate the company for not raising as much money in the common-stock sale, the size of the convertible issue was increased, even as the terms were made more generous to attract investors. Meanwhile, selling shareholders weren't able to sell all that they had wanted.
After the deal was restructured, Mr. Cohr says Global Crossing still raised $1.7 billion, only slightly less than the $2 billion it had hoped for. That, he says, is enough financing to complete the firm's business plan and put it ahead of competitors.
Underwriters are undertaking a number of strategies to get deals done even in an environment that looks riskier by the day. The first line of offense is to limit the number of shares being sold by insiders as part of a secondary stock issue. That sends a signal to the market that those insiders still believe in the company's prospects -- and reduce the amount of stock hitting the market.
IPO candidates and their investment banks also are delaying as long as possible the process of filing an initial pricing range for their stock. Where that range -- a starting point for negotiations with potential investors -- used to be automatically set when the company filed its first prospectus with the SEC, lawyers say their clients now seek to delay as long as possible, to avoid being pinned down to a specific valuation that they then may have to reduce if the market worsens. As well, underwriters for both IPOs and follow-on issues try to hold off on saying what day the deal is expected to price. That way, if there is a postponement, it's not as publicly embarrassing.
"The bar is getting higher on IPOs and follow-on transactions," says Jim Cowles, head of global equity capital markets at Salomon Smith Barney. "Sellers need to demonstrate flexibility on price. And an issuer needs an underwriter with broad distribution capability. You need to be in a position to tap all sources of demand."
But if the Nasdaq Composite Index continues its slide, adroit maneuvering by underwriters might not be enough to keep the financing window open for IPO candidates and other companies looking to raise more cash.
"The reality is that we're more dependent on Nasdaq than we've ever been," says Morgan Stanley's Mr. Curtis. "If Nasdaq trades well, you'll see the equity issuance improve. If not, it will become more difficult."
That is because stock-index performance affects how much cash fund managers have to invest and how willing they are to buy stocks with rich valuations and little track record. The more the market batters recent IPOs, the less enthusiastic a reception new issues will get.
Mr. Curtis at Morgan Stanley calculated that of the 125 IPOs priced so far this year, nearly 40% trade below their issue prices, thanks to the recent turmoil.
"It's the most subdued we've seen in a while," he says. "The momentum may be flagging."
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