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Strategies & Market Trends : The Good-The Bad and The Ugly -- Ignore unavailable to you. Want to Upgrade?

To: Tim Luke who wrote (2268)	9/10/2000 3:14:27 PM
From: Tim Luke	Read Replies (2) \| Respond to of 8686

Sunday September 10, 3:12 pm Eastern Time IPOVIEW - Pricing gets tricky as market see-saws By Denise Duclaux NEW YORK, Sept 10 (Reuters) - Initial public offerings require delicate juggling of investor appetite with a company's funding needs, but extreme market volatility has thrown another ball into the air, making it tougher than ever for companies and their bankers to forecast a suitable offer price. Prior to the booming IPO market in 1999, on average about half of companies priced their stock within the expected range first filed with the Securities & Exchange Commission, according to finance professor Jay Ritter. Roughly 25 percent priced their shares above that expected price band, and 25 percent below the range, said University of Florida's Ritter. But the enthusiasm that lifted new issues in 1999, followed by the gloom that infected the market during the Nasdaq's spring meltdown this year, have altered pricing trends. Last year saw eye-popping investor appetite for new issues, which often doubled or tripled in their first trading day. Underwriters and companies responded by pricing new stock above the original price range, confident investors would ante up more for a slice of an IPO. In 1999, 48 percent of IPOs priced above the price range originally filed with the SEC, 36 percent within that range and 15 percent below the initial price band, according to Ritter. In the first quarter of 2000, a whopping 70 percent of new issues priced above the initial price band, 27 percent priced within and just 3 percent of new issues priced below their price range, Ritter said. Ritter added that underwriters may have intentionally underestimated the initial price range for the companies, hoping to jack up the price later in a move that would signal robust demand for the stock. But last spring, the Nasdaq, where the majority of companies first begin trading, swooned as Wall Street doubted the sky-high valuations placed on technology companies. Investors were reluctant to invest in young companies when even established companies were suffering in the market. ``Valuations for comparable companies can increase and that would have the effect of making the filing price look on the cheap side,'' said Joseph Missett, a managing director at CIBC World Markets. ``If things change on the negative side between filing, the bias would dictate a lower price because the comparables have sold off.'' In the second quarter of 2000, a hefty 52 percent of IPOs priced below their initial range filed with the SEC, 29 percent within the range and just 19 percent above, according to Ritter. ``It's the result of a market careening between bouts of ebullience and despair,'' said Randall Roth, an analyst at Renaissance Capital's IPO Plus Aftermarket Fund (Nasdaq:IPOSX - news). So far in the third quarter, 25 percent of IPOs priced below their original range, 38 percent within the expected price band and 37 percent above, Ritter said. ``So we have gone from first quarter extreme where 70 percent of the deals were revised up substantially to the last five months where a lot have been priced below,'' Ritter said. ``It's consistent with the old saw that the IPO market is never in equilibrium, it's either too hot or too cold.'' Indeed, last week alone the technology-laced Nasdaq composite index (^IXIC - news) dropped 6 percent and fell below the psychologically key 4,000 level for the first time since mid-August, dented by weakness in former high-fliers like semiconductor shares. ``The winners and losers have become so dramatic,'' said Kenan Pollack, money editor at Hoover's Online. ``Last year, everybody was enjoying the euphoria and everybody was doing well. This year it's back to reality. It's just, in general, there is more volatility overall in the market.''