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Strategies & Market Trends : Rande Is . . . HOME -- Ignore unavailable to you. Want to Upgrade?

To: Rande Is who wrote (51596)	5/21/2001 8:22:43 PM
From: Tradelite	Read Replies (1) \| Respond to of 57584

Rande, you might like this Washington Post story about how the SEC and NASD are looking into "pump and dump" in IPOs. I agree (based on firsthand experience) with the theory that investment bankers give IPO shares to favored customers on condition they won't sell it right away, and thereby prop up the price. _________ By Jerry Knight Monday, May 21, 2001; Page E01 Looking back after the "tech wreck" at four years of initial public offerings by local high-technology companies, it's hard to remember why Washington investors were so eager to pour so much money into so many unproven businesses. IPOs have always been among the riskiest investments, but during the "No Fear" 1990s, they acquired exactly the opposite reputation. Individual investors complained bitterly that Wall Street was shutting them out of IPOs by giving big institutional clients all the newborn stocks that were going to be "instant winners." Winners, but only for an instant, is more like it. Take a look at the scorecard on the 63 local tech companies that went public in the past four years: Only 52 of those companies are still in business on their own. Only eight of those 52 stocks are selling for more than their original offering prices. The other stocks are underwater. The worst are 99 percent below their offering prices. Two of the companies are in bankruptcy and 10 other stocks are selling for less than $1 a share. As a group, the survivors average out to a 45 percent loss, because the profits on the eight winning stocks are overwhelmed by the losses on the other 43. Oddly, the 11 companies that went public since January 1997 and no longer exist turned out to be much better investments than the 52 survivors. Four of the firms were sold for less than their original offering price -- CareerBuilder.com, OneMain.com, Hagler Bailly Inc. and Sequoia Software Inc. Investors in those IPOs lost money, but probably not as much as they would have lost if the companies hadn't sold out when they did. Executives of the other seven companies that are no longer independent were smart enough to take the money and run. They sold out while tech stocks were still hot, cashing in while there was still cash to be had, and for more than their companies' offering price. Far and away the biggest hit was Network Solutions Inc., the company that registers Internet addresses. Network Solutions went public at $18 a share and was sold for $201.25 a share to VeriSign Inc. AppNet Inc. which went public at $12 and sold 15 months later for $54.11 a share, was the next-best deal. Investors also scored home runs on Advanced Communication Systems, which went public at $7.50 and sold for more than $21 a share; Best Software, whose $13-a-share IPO led to a buyout for a little under $35; and Yuri Systems, with its $12 IPO and $35 buyout. So this is the bottom line on the 63 District, Maryland and Virginia high-tech companies that have gone public since the beginning of 1997: Seven companies sold at a profit plus eight stocks still trading above their IPO prices adds up to 15 profitable investments out of 63 IPOs. That's not quite one chance in four, paltry odds compared with the "instant winner" image of IPOs. Neither big gains on the first day of trading nor triple-digit stock prices proved to be a guarantee of longer-term success. Aether Systems Inc., WebMethods Inc. and Corvis Corp., the three local IPOs that got off to the most spectacular starts, all are trading for less than their offering price. Corvis went public at $36, peaked at $108 and closed Friday at $6.89; Aether came out at $16, hit $315 and now is $13.60; WebMethods debuted at $35, shot to $308 and is down to $24.45. Why? There are three principal reasons why the region's high-tech IPOs haven't lived up to their early expectations. The first is that reality has returned to tech stock prices. The party is over. Investors are no longer willing to buy stocks at prices that bear no relation to profits. Corvis, Aether and WebMethods may be solid companies, but that never made them worth the prices their stocks reached. The second is simply that a lot of those high-flying high-techs turned out to be turkeys. Turkeys don't fly very well; it's not in their genes. Too many tech company business plans were congenitally flawed. Take LifeMinders.com -- as it called itself before dropping the .com in hope of escaping the stigma. Its plan was to make money by selling e-mail advertising. If ads were gussied up as electronic newsletters or helpful hints, consumers would actually ask to get them, LifeMinders claimed. Advertisers would pay generously to have their message sent to people who wanted to see it. LifeMinders stock jumped from $14 a share to $22.38 on the first day of trading and within months was up to $91. Today it's around $1.30. It was down to 50 cents until the company recently decided to call it quits, saying it might liquidate. The stock recovered because investors realized that closing the doors was a better idea than trying to keep the company going. The $1.30 is pretty close to the cash LifeMinders has in the bank. The exponential growth curve that investors projected to rationalize the price of LifeMinders stock turned out to curve down as well as up. A year ago revenue was $16.7 million, the next quarter, $11.6 million, then $5.5 million. The projection for the current quarter is $2 million. There probably won't be another. LifeMinders.com was a lousy idea from the get-go, but it took a long time for the reality to catch up with the hype. And companies with far better prospects than LifeMinders.com went from "instant winners" to inferior long-term investments. But neither hopelessly flawed business plans nor hopelessly flawed valuation models entirely explains why stocks trading today at a fraction of their IPO price started out as "instant winners." Market manipulation may well have been involved in the early run-ups, based on what's been uncovered so far by investigations by the Securities and Exchange Commission and the oversight arm of the National Association of Securities Dealers. Leaks from the still-secret investigations suggest that the huge early gains in many IPOs were no accident. Investment bankers, the investigators now believe, rigged prices by deliberately creating demand for far more shares of hot new companies than they had to sell. No charges have been filed yet and lawyers for Wall Street firms say no laws were violated. None of the local IPOs are among the deals that have been identified in published reports as targets of the investigations, though one shareholder rights lawyer is suing Corvis and its underwriter, Credit Suisse First Boston, for alleged improprieties in the early after-market sales of Corvis's August 2000 IPO. The SEC and NASD investigators are trying to prove that some underwriters made under-the-table deals with some of their favored customers. This is how they think it worked: We'll let you have shares of a hot IPO at offering price, if -- in return -- you'll put in an order for more shares on the first day of trading, the investment bankers allegedly told their buddies. Lining up buy orders in advance created a backlog of demand for the new stocks and guaranteed that the price would jump dramatically in early trading. Along with pumping up demand for the new shares, the bankers also are suspected of manipulating the supply of stock available for trading. They allegedly told some buyers they could have shares in the IPO only if they promised not to sell them on the first day of trading -- -- "flipping the IPO" in the parlance of the period. Other buyers were given shares on the understanding that they would flip them. Balancing the flippers and the non-flippers controlled the supply of the stock. Recruiting other investors to put in orders on the first day of trading controlled the demand. Everybody in the game could make money if the IPO took off. Every spectacular debut created more buzz about the IPO market, encouraging more companies to go public and more investors to get into the game. Maybe the investigations being conducted will turn up no wrongdoing in the IPOs that became "instant winners." But the theories that investigators are pursuing make it a lot easier to understand why so many "instant winners" turned out to be such lousy investments. Jerry Knight's e-mail address is knightj@washpost.com © 2001 The Washington Post Company

To: Rande Is who wrote (51596)	5/22/2001 9:35:31 AM
From: fastcats	Read Replies (1) \| Respond to of 57584

Re FiberSAM, UBS Warburg has issued a research report warning of the impact the electricity crisis in Brazil may have on a number of multi-nationals doing business there. With extended blackouts forecast and no near-term solution in sight, the prognosis doesn't sound good. Since fbce is well below their radar, I have asked investor relations for their outlook and will keep the board informed of their response. fc