Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Strategies & Market Trends : Sharck Soup -- Ignore unavailable to you. Want to Upgrade?

To: Devin123 who wrote (15427)	4/8/2001 1:53:38 PM
From: Devin123	Read Replies (1) \| Respond to of 37746

Here's some more from Barron's that turns my stomach as far as Investment Banks... slimey bastards. Pay particular attention to paragraphs 5 and 6. There's more on the link at bottom if you want to read : Valuation Confusion Agere deal shows how issuers misread market By Jack Willoughby Look out below! Last week the year's most hopeful new technology issue, Agere, became the year's biggest dud. The price sank like the Titanic beneath the offering price, then partially resurfaced toward the end of the week. The massive IPO, a microelectronics unit of Lucent Technologies, dipped to $4.10, more than 30% below its $6 offering price -- and way under the $17.50 contemplated when the deal was initially filed. The wide discrepancy illustrates an icy reality when it comes to pricing new equity: Agere must beat the odds to come back above its issue price, because rarely do IPOs return to their issue price once they fall below it. As an example, Richard Peterson, market analyst for Thomson Financial Securities Data, points out that in 1990, of the 50 new issues that fell below their offering prices, only six managed to resurface and trade above them. "The odds are certainly against a turnaround based upon new-issue history," says Peterson. The rout in technology stocks only partly explains the Agere selloff. The dip came soon after underwriter Morgan Stanley Dean Witter exercised the full $540 million "green shoe" allotment for newly minted shares in Agere. The novelty about this green shoe was the speed with which it was exercised -- four days after pricing -- and the firm it ultimately benefited, Morgan Stanley Dean Witter. An underwriter normally exercises a green shoe -- the option to acquire extra shares in a new issue at the offering price -- to stabilize the price in the early days of trading. In a market with slack demand, the share overhang provided by a green shoe would help protect buyers of the offering from short raids. The Agere green shoe was really a disguised secondary offering in which Morgan Stanley sold shares it had swapped for Lucent debt. "This was not a green shoe, it was the heel mark of a white shoe on the investor's wallet," declares Leo Guzman, president of Miami-based Guzman & Co. Timing proved critical. With Agere, Morgan Stanley's quick action had the effect of leaving the new-issue buyers exposed to negative market sentiment. For some institutions that were pressed by Morgan Stanley into service on Agere, such treatment amounted to abandonment. Though Morgan Stanley's four-day green shoe was clearly disclosed in the prospectus, and the possibility of a $1 dip was widely discussed, critics complain that the provision was widely overlooked in the flurry of revisions in the offering's particulars. Managers will need some time just to get used to the dramatic drops in valuations that mark today's offering markets, according to William Hambrecht of investment banker W. R. Hambrecht and a pioneer in new issues. "We're talking about a drop of almost 90% [from aftermarket highs] for most of this stuff," he says. The sharpness and speed of the current drop distinguishes the current situation from the last big bear market, which started in 1973 and ran for almost two years. Hambrecht, a founder of Hambrecht & Quist, recalled that in 1975 there were only a handful of IPOs done all year. The market failed to pick up until five quarters after yearend 1974. Right now the structure exists for the pipeline of new deals, but nothing is moving through. Hambrecht expects to see a lot of smaller deals in the coming months. "The good news is that so little's happening you can get a real audience," he says. "We're already seeing a few managements come in with more realistic valuations. But many of them are still not facing up to the realities of the current market." interactive.wsj.com