Hambrecht Repurchases Shares of Ravenswood

After managing the initial public offering of 1 million Ravenswood Winery Inc. shares in April’s debut of a new IPO auction technique, W.R. Hambrecht & Co. and its chairman have taken the unusual step of repurchasing about 600,000 of the vintner’s shares since the offering.

The encore to W.R. Hambrecht’s first test of its online “Dutch auction” IPO system gives the San Francisco investment bank a 13% stake in Ravenswood, according to a regulatory filing.

A W.R. Hambrecht spokeswoman said the firm bought stock on the open market because it considers the Sonoma, Calif., winery to be a favorable long-term investment. Chairman Bill Hambrecht is known as a wine aficionado.

But outside observers noted that W.R. Hambrecht’s purchases also could have helped support the price of Ravenswood’s shares, which have been virtually flat since their offering.

Without that support, the stock conceivably could have declined, which would have been a black mark on the investment bank’s reputation and on its new underwriting technique.

“They are going to be judged on how successful they are with their early offerings,” said Michael Gazala, research director at Forrester Research Inc.

W.R. Hambrecht is “moving into a market where companies who are raising capital are terrified of anything going wrong,” he said.

W.R. Hambrecht’s system, which it calls OpenIPO, promises lower fees and higher proceeds for companies that go public.

Under a Dutch auction, investors bid for a certain number of shares at a set price. The idea is to find the highest price at which a company can sell all the stock it wants to offer.

In theory, that could help companies get top dollar, unlike some traditional IPOs that are priced based on conservative estimates of demand, only to double or triple when trading begins.

The OpenIPO system also lets individuals get shares in IPOs that traditionally have been marketed primarily to large institutions.

Ravenswood (ticker symbol: RVWD) was the first test of OpenIPO. The stock closed Monday at $10.50 on Nasdaq, unchanged for the day and unchanged since the IPO.

The system then was used for a June stock offering by online magazine Salon.com (SALN). That deal has been a bomb: The stock, which on Monday was down 25 cents to $5.75 on Nasdaq, is down 45% from its $10.50 IPO price in June.

Up next: a planned IPO by Andover.net Inc., which has a network of Web sites primarily for programmers, software developers and Web site designers.

Some analysts think Andover.net could generate more investor interest because of its focus on the Linux free operating system.

The Ravenswood IPO raised $10.5 million for the company.

But the stock has traded very thinly since then, which has made purchases by W.R. Hambrecht more important to the price.

The purchases would have reduced the number of shares in the market for the public to trade, a figure called the “float.” A smaller float generally leaves investors chasing fewer shares, helping bolster prices.

Neither W.R. Hambrecht nor Ravenswood could say exactly how large the company’s float is. Ravenswood officially had about 4.57 million shares outstanding as of Sept. 5. But much of that stock is held by insiders such as company officers or directors, and the number generally available for trading by the public depends on how much stock they sold after the IPO.

If the shares sold in the IPO account for most of the stock that now trades publicly, W.R. Hambrecht’s purchases would account for the equivalent of about 60% of those shares.

Ravenswood shares have stayed in a tight range since the first day of trading April 9, never changing hands for more than $11.13 or less than $10.25. Average daily trading volume has fallen to about 5,000 shares, from 35,000 in May.

Thus, W.R. Hambrecht might be providing much of the market for investors who want to sell Ravenswood shares.

Open-market purchases of 600,000 shares would represent about 20% of the total trading in the winery’s stock since the April IPO.

“You have to make an appointment in Hambrecht’s living room to sell your shares,” quipped Lewis Gersh, chief executive of Worldlyinvestor.com (https://www.worldlyinvestor.com), a Web site that provides news and analysis to retail investors.

W.R. Hambrecht said in a Schedule 13D filed with the Securities and Exchange Commission that, not counting convertible debentures it owns, it now holds 642,201 Ravenswood shares. That’s up from 36,765 including debentures at the time of the IPO, according to a separate regulatory document.

Sharon Smith, a W.R. Hambrecht spokeswoman, said the company bought shares in the open market after underwriting the IPO. She said the stake reported by the firm includes 109,765 shares personally owned by Bill Hambrecht, who left Hambrecht & Quist in January 1998 to run the Internet investment banking venture and his other investments.

“Part of this is in Bill Hambrecht’s personal accounts,” Smith said. “He holds stock in lots of wineries, most of them private at this point.”