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To: Danny who wrote (22)	2/22/2001 12:32:01 PM
From: Glenn Petersen	Read Replies (2) \| Respond to of 136

I don't know about $20. Given the current environment, they will be lucky if it pops 2 or 3 bucks. redherring.com oudcloud sends smoke signals to IPO market By Eric Moskowitz Red Herring, February 21, 2001 Gone are the days when initial public offerings were one-day brand-building events that multiplied the company's market cap by 10. But now it seems the pendulum has swung so hard in the other direction that it has become untethered from its frame. IPOs, incredibly, are now decreasing the market capitalizations of even the brightest lights in registration. Take Loudcloud (Nasdaq: LDCL), for example, which filed a long-awaited amendment with the Securities and Exchange Commission last week outlining management's plan to complete a $180 million offering by floating 20 million shares at $9 each. That would give Loudcloud a market cap of $607 million, which is 17 percent lower than the $728 million valuation it received way back in June in a $120 million private round. So much for IPO magic -- in its original filing from September 2000, Loudcloud sought a post-IPO market cap of $1.15 billion. It's true that the company's 20-million-share offering doubles the number of shares Loudcloud wanted to float when it filed in September, with a price range of $10 to $12. But Loudcloud watchers overlooked the fact that the latest filing, dated February 16, completed a 2-for-1 reverse split of its shares. In our opinion, this move was a clear concession to the difficult climate for floating shares in a money-losing venture -- regardless of management's pedigree. Investors have to give credit to Loudcloud's lead bankers, Goldman Sachs and Morgan Stanley, who know better than anyone how to frame an IPO in the best light possible. Loudcloud's filing last fall would have sold just 9.5 percent of the company's outstanding shares. Now, public investors will hold a 29.7 percent stake in the company. The larger-sized, $180 million offering may also highlight immediate cash needs. Based on Loudcloud's run-rate cash burn of about $10 million per month, we would project its current cash balance at around $80 million. As of October 31, the company reported cash reserves of $112 million, down from $142 million as of July 31. Loudcloud's latest filing signals one thing for sure: the Internet infrastructure play is now officially on its road show, which should lead towards a March IPO -- a development Red Herring first reported. NO MORE IPO AFTERGLOW Now that Loudcloud management has sliced its market capitalization, the boards of directors at other companies may be exploring similar alternatives to make their offerings more appealing. Fiber-optic equipment maker IPG Photonics (Nasdaq: IPGP), for example, raised $95 million in an August 2000 round that valued the company at $957 million. In IPG's latest filing, the company set its valuation higher, at $1.36 billion. Since that February 2 filing, however, investors have been handling the stocks of Corvis (Nasdaq: CORV), JDS Uniphase (Nasdaq: JDSU), and Lucent Technologies (NYSE: LU) like falling knives; all are trading at 52-week lows. IPG Photonics may have to adjust its valuation accordingly before going on the road to market its IPO. WaveSplitter Technologies (Nasdaq: WVSP) and Chorum Technologies (Nasdaq: CHOR), among others, may very well be reevaluating their valuations. WaveSplitter is in the market for a 10-million-share offering that would value it at $796.2 million, up from $504.3 million received in a September $51 million round. Chorum is eyeing a $1.18 billion market capitalization, up from a $957 million private round in August. Both may follow Loudcloud, and this trend-setter in the Internet infrastructure market may wish it hadn't set this particular trend.