Wall St. Rebounds, but Will It Last?
T-Online, Europe’s largest Internet service provider and the world’s No. 2 behind America Online, finessed a successful debut on the stock market Monday--despite a global plunge in high-tech shares--by wielding a tried-and-true weapon against disappointment: lowered expectations.
After Wall Street wrapped up its worst week ever Friday, executives at T-Online’s parent company, Deutsche Telekom, set the initial public offering price for the heavily oversubscribed shares at only 27 euros, or $25.69. That was close to the bottom of the stock’s 26- to 32-euro range set April 3, already sharply cut from prices in the 40- and 50-euro range discussed earlier this year.
Because of the modest pricing, the first day of T-Online trading in Frankfurt’s Neuer Markt technology index saw the debutante’s share value rise 38% by the close, to 37.22 euros--a rare ascent amid a continuing worldwide sell-off of Internet stocks. The moderately good news on T-Online, coupled with general calm by European investors in the wake of Wall Street’s disastrous prior week, was reason for optimism among global technology investors.
A Dow Jones index of 50 major European shares eased just 1.2% Monday, paring a decline of as much as 4.8% as European investors late in their session saw Wall Street rebound.
The main German share index, the DAX, slipped 0.4% by the close, after diving 4.5% early in the session. The French market was off a mere 0.1%. In Britain, however, the FTSE-100 index slumped 3%.
“I actually thought it would be worse than it is,” said Brian Moretta, a fund manager at Scottish Value Management, which oversees $954 million in assets. “I don’t think at this stage we are in for a repeat of the 1987 Armageddon.”
For T-Online, “This was a good start in difficult times,” said Deutsche Telekom chief Ron Sommer, describing market reaction as “overwhelming evidence of trust” in what is now the biggest stock on the dynamic Neuer Markt after the world’s largest Internet IPO.
Sommer dismissed media descriptions of the last-minute IPO price reduction as a disappointment for the company, which earned about $500 million less from the sale than was predicted late last week. “We’re thinking long term,” he said of the pricing decision.
T-Online’s promising start offered hope that other European technology issues can go ahead despite unfriendly markets. It also showed a modicum of courage among European investors, who tend to be far less inclined to put their savings in equities than their American counterparts.
After last week’s worldwide tumble of technology share values, several Internet companies postponed planned IPOs, including U.S. portal Alta Vista and Britain’s Yes Television video provider.
But private and institutional investors had put in orders for 20 times the 108 million shares offered in T-Online. The IPO floated about 10% of the firm’s ownership, raising nearly $3 billion for expansion beyond the German-speaking market and valuing T-Online at $30.2 billion.
Although Wall Street has thrashed other Internet stocks in recent days, T-Online presumably benefited from the greater growth opportunities in Europe. Less than 15% of Germans have Internet access, versus nearly half of U.S. households.
In keeping with efforts among German businesses to lure more personal savings out of low-interest passbook accounts, Deutsche Telekom set aside nearly half of T-Online’s initial offering for small private investors.
That move and the lowered price of the Internet subsidiary were intended to create a favorable atmosphere ahead of the German government’s plan to divest itself of another chunk of its Deutsche Telekom holdings in June.
Germany’s government owns about 60% of Deutsche Telekom after two stock offerings over the last four years in the former telecommunications monopoly.
Analysts mostly praised the decision to price T-Online near its lower limit to avert a confidence-shaking drop in value below the offer during trading.
“They held their nerve,” said Klaus Nieding, an independent analyst and spokesman for a German alliance of small investors. “In unimaginably bad circumstances, the stock came through only slightly bruised.”
The offering could shine new light on the relatively strong performances of many European markets this year.
Buoyed by local technology stocks, most European markets have held up better than the U.S. market. Measured in euros, the main French market index is up 1.7% year-to-date, the German DAX is up 3.3% and the main Swedish index is up 7.7%.
By contrast, the U.S. Standard & Poor’s 500 is down 4.6% for the year, while the Nasdaq composite is down 13%.
