Market Slump Delays Several Initial Public Offerings : Stock: Recession worries and surging oil prices have caused some local companies to postpone their plans.
Plans by several local companies to go public are going nowhere, thanks largely to Saddam Hussein.
Cherokee Inc. in Sunland, Black Box Inc. in Simi Valley and California Commuter Shuttle Inc. in Oxnard are among the companies forced to postpone their initial public offerings of stock because the stock market has lapsed into a deep decline since late July. The Dow Jones Industrial Average, for instance, is off 18% since hitting a record high 2,999.75 on July 16.
The slumping market, beset with worries about an economic recession and the surge in oil prices induced by Iraq’s Aug. 2 invasion of Kuwait, means companies, at best, are unable to fetch the prices that they envisioned for their new shares and, at worst, are unable to sell the stock at all.
The companies could cut their offering prices, but to raise the same amount of cash would require selling more shares and reducing the stakes of the companies’ current owners. So their underwriters--the securities firms that distribute the stock to the public--are postponing the offerings with the hope that the stock market will soon improve.
But even with lower prices, many initial public offerings (IPOs) are in trouble. As the market’s recent drop has shown, jittery investors are reluctant to hold many blue-chip stocks, let alone stocks in untested public companies. With investors so nervous, some IPOs find no takers at any cost.
“If they need the money, they’ll have to look for financing in other places,” said Frank Santos, managing editor of Eliot Sharp’s Financing News, a newsletter published by IDD Information Services in New York.
Investors also are gun-shy about IPOs because they bought several new issues last spring that have since plunged back below their offering prices.
“Institutional buyers simply decided they were not going to buy any IPOs, and with few exceptions, they’ve adhered to that position,” said Patrick Graham, a managing director in Los Angeles for PaineWebber Inc., which is handling Cherokee’s offering.
As a result, Cherokee, a Sunland-based apparel maker, will wait “a short while longer” to see if market conditions improve, but “my best guess is we will not be doing a public offering in the near term,” said Cary D. Cooper, Cherokee’s executive vice president.
It was a different story two months ago. With the market climbing, IPO activity was brisk. In the first half of 1990, 132 companies went public--an average of 22 a month--and raised nearly $7 billion, said Chris Stetkiewicz, managing editor of The IPO Reporter, another IDD newsletter. But only seven new issues have arrived so far this month, which could be the worst month for IPOs since April, 1984, he said.
Locally, at least four regional companies had gone public in early 1990, and at least six more disclosed their IPO plans between June 8 and Aug. 16.
Three of the them--Cherokee, Black Box and Leslie’s Poolmart--represented efforts by their owners to cut the companies’ massive debt loads, which were incurred when the managers earlier bought the companies and took them private with mostly borrowed money.
Cherokee hoped to sell 4 million common shares, while Black Box, a maker of computer and communications products, wanted to sell 4.5 million shares. Leslie’s is a Chatsworth-based marketer of swimming pool supplies that announced July 20 that it hoped to offer 2.4 million shares, but it too has yet to “come to market.”
Other IPOs in limbo involve fledgling companies. California Commuter Shuttle is a tiny airline with just one plane. It had hoped to raise $2.5 million with the sale of 600,000 shares and buy more aircraft.
Another is Pac Rim Holding Corp., a 3-year-old workers’ compensation insurer in Encino that last month announced plans to sell 2.5 million shares for about $21 million. Pac Rim’s offering is still awaiting regulatory approval and has not been withdrawn, said Executive Vice President Paul W. Craig. But he declined to speculate on whether the deal might be shelved, saying, “It’s too soon to tell.”
