Most Major Initial Public Offerings From Firms in County Fell in ’86

For many investors who bought into Orange County initial public offerings last year, sticking cash in the mattress would have been a smarter investment.

All but two of nearly a dozen major local initial offerings during 1986 declined in value by year-end.

Hardest-hit were investors in Shelly Associates Inc., a Tustin-based electronics manufacturer. Shelly, which went public in May with an offering of 2 million shares at $2.50 each, fell 50% in value by Dec. 31 to close at $1.25.

Buyers of Quiksilver Inc., the Newport Beach-based maker of clothing for the surfing set, were also hammered. Though the stock fell just 12.3% to $7.125 a share, it managed to take that fall in just four weeks following an early December offering at $8.125 a share.

The two winners were ICN Biomedicals Inc. and CIMCO Inc.

ICN Biomedicals, a subsidiary of Costa Mesa-based ICN Pharmaceuticals Inc., shot up 147.9% by the end of the year to close at $14.875 a share. The company went public in August with an offering of 7.4 million shares at $6 each.

CIMCO, a Costa Mesa custom injection molder and medical products manufacturer, increased 22% in price to close Dec. 31 at $10.25 a share, up $1.25 from its offering price of $9 a share in May.

Analysts and investment bankers blame the generally lackluster performance of the new offerings in part on the overall weak market that existed for non-blue chip stocks. Although the stocks that make up the Dow Jones industrial average were up 22.58% for the year, over-the-counter issues climbed only 10.73% in price.

Moreover, some late-1986 IPOs were duds because brokers were often too busy putting too many deals together, said Fred Krimm, first vice president of corporate finance for Bateman Eichler, Hill Richards Inc., a Los Angeles investment firm.

“They were so busy with their own deals that they didn’t have time to help with other deals,” said Krimm, who added that lead underwriters typically account for only about 30% of the stock sold in an initial public offering.

Other big losers in the freshman class of Orange County issues included MAI Basic Four Inc., which hit one new low after another on the NYSE after it went public in June.

Although Drexel Burnham Lambert Inc., which was MAI’s lead underwriter, lowered the offering price to $15 a share from a proposed $17 to $20 a share, the Tustin-based computer maker’s stock still slid 26% in price to close the year at $11 a share.

Similarly, Commtron Inc., a subsidiary of Orange-based Bergen Brunswig Corp. began an immediate free-fall on the American Stock Exchange after its July initial offering. Commtron closed the year at $8.625, down $3.375, or 28% from its offering price of $12 a share.

Though ill-timed--the offering came one day after the Dow Jones industrial average fell 61.8 points--the stock sale was still for the best, said Robert Martini, Bergen Brunswig’s president.

‘We would have done exactly what we did. I just wish we had done it a week earlier rather than on the eve of a calamity,” said Martini, who hopes that Commtron shares eventually rebound.

But, for Phillip Stevens, president of Ultrasystems Inc., an ounce of prevention was worth a pound of cure.

The Irvine-based engineering company, had been planning to take its Defense and Space subsidiary public last year, but aborted the offering--which had been expected to raise more than $10 million--rather than “give our stock away,” Stevens said last week.

Although canceling the offering cost Ultrasystems at least $300,000 in legal costs, it was better than going public at a time when the stock was likely to fall, Stevens said. A public stock sale will probably take place eventually, he said, but “not until market conditions improve.”

Just what it will take for market conditions to improve for initial offerings is subject to some speculation.

Krimm, of Bateman Eichler, said that IPOs will perform better in 1987 once a few, highly visible offerings take place and go on to score new highs. New offerings will also do better once underwriters learn to price stocks more realistically, he said.

Ralph Acampora, chief technical analyst for the Wall Street investment firm of Kidder, Peabody & Co., believes that IPOs will lag in general until after the non-blue chip stocks rally. And, he added, “it’ll take a good turn-up to do it.”