Precious Few Get Hands on Palm’s IPO
It’s arguably the most anticipated initial public offering in years. But shares of Palm Inc., which were priced Wednesday at $38 each, were almost impossible for even the most wealthy and well-connected investors to buy.
That’s because just a sliver of the company’s shares--about 4.1%--were sold to the public. Companies increasingly are seeking to boost their stocks’ demand, and thus their price, by limiting the amount available, analysts and investors said.
Santa Clara, Calif.-based Palm, maker of the Palm Pilot hand-held computer, raised $874 million by pricing 23 million shares at more than double the original expected range of $14 to $16, in a deal that valued the company at about $21.3 billion.
The stock starts trading today under the ticker symbol PALM on Nasdaq, and many analysts expect its price to double or triple in early trading. Parent 3Com Inc.’s stock has risen 122% this year in anticipation of the deal, because buying 3Com shares is seen as a sure way to eventually get some of Palm.
Although IPOs are famously difficult for any investor except large mutual funds, institutions and the moneyed elite to buy, even many of those players were shut out Wednesday. Hundreds of thousands of investors nationwide may have been turned down in their attempts to get Palm at the offering, or pre-trading, price, brokers estimated.
“None of us have it here--but everyone’s calling and asking for Palm,” said Bob Donahoe, a broker with A.G. Edwards in Santa Monica who caters to wealthy clients.
Donahoe said his office typically gets “a piece” of hot IPOs, which is split among the top brokers, who then offer those shares to their best clients.
“I would love to get it [Palm] at the IPO price,” Donahoe said. “But that’s not going to happen today.”
Because demand was so strong, investment bankers selling Palm’s IPO had to decide which institutions and wealthy individuals got anything, in a process one analyst called “eye-dropper allocation.”
“With Palm they’ll be saying, ‘You get 10 shares, you get 20 shares,’ rather than the usual, ‘You get 100 or 100,000 shares,’ ” said David Menlow, president of IPO Financial Network in New Jersey. “Brokers will be playing political god, telling clients who gets shares or not.”
Palm sold an additional 7.3 million of its 562.3 million shares to America Online Inc., Motorola Inc. and Nokia Corp. The remaining shares, about 95% of the company, are expected to be distributed to existing 3Com shareholders this fall as a dividend.
“Palm is going to be way oversubscribed,” Revell Horsey, head of equity capital markets at Banc of America Securities in San Francisco, said Wednesday. “You have to cut people back to a fraction of what they were looking for. Then you have a lot of unhappy people, because no one gets what they wanted.”
Allotting shares in such a high-demand offering can be tricky for investment banks, who want to keep buyers happy so they will be there for the next deal.
Bankers also try to assess which buyers would be likely to stick with the company, rather than “flip” the shares for a quick profit after the first-day run-up, which can hurt a stock.
“You have to decide which buyers are going to long-term investors in the company, really separate the buyers from the liars,” Horsey said.
Goldman Sachs & Co. handled the IPO, with help from Morgan Stanley Dean Witter & Co., Merrill Lynch & Co. and BancBoston Robertson Stephens & Co. The investment bankers either declined to comment on the allotment procedure, citing the Securities and Exchange Commission-imposed “quiet period” surrounding stock sales, or could not be reached.
Palm’s decision to sell such a small stake is the latest example in a trend. The amount of shares a company sells in an offering has been steadily dropping in recent years, according to Thomson Financial/Securities Data, a New Jersey research firm. Last year, companies sold an average 27% stake, down from 31% the year before, Securities Data found.
Tiny-stake offerings, though rare, are not unprecedented. Since the 1970s, nearly 100 companies have sold stakes smaller than 4% in their IPOs, Securities Data found. Eight of those deals came last year.
One reason for the trend is that many technology firms are being rewarded with big market valuations in their debuts, bankers say.
“If the stock is going to run a lot on the first day, why do you want to sell a large percentage of the company when an IPO is probably the most expensive way for a company to raise equity?” said one banker. “It’s better to wait for the follow-on to sell more shares.”
Underwriting fees associated with such follow-on deals are lower for the company, and by that time--assuming the stock is worth more than it was in the IPO--it becomes an easy way to raise additional money.
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Palm Mania
Shares of Palm Inc.’s parent, 3Com, have doubled in the last month amid excitement over Palm’s initial public offering, which begins trading today. Daily closes and latest:
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3Com on Wednesday: $104.13
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Will It Make History?
The five biggest first-day gainers among initial public offerings of $10 million or more:
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Offer % Issuer Ticker date change VA Linux Systems LNUX 12/09/99 +733% Theglobe.com TGLO 11/12/98 +606 Foundry Networks FDRY 9/27/99 +525 WebMethods WEBM 2/10/00 +508 Freemarkets FMKT 12/09/99 +483
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Sources: Bridge News, Thomson Financial Securities Data
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The Palm Deal
* Number of shares: 23 million
* Share price at offering: $38
* Market capitalization at
offering price: $21.3 billion
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Biggest IPOs in Dollar Value
The Palm initial public offering may be among the biggest first-day price winners ever, but the total sum U.S. raised--$874 million--doesn’t make the list of top 10 IPOs. The biggest deals:
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Proceeds Issuer Ticker Issue date (billions) UPS UPS 11/09/99 $4.38 Conoco COC 10/21/98 3.96 Goldman Sachs GS 5/3/99 2.93 Charter Communications CHTR 11/8/99 2.75 Lucent Technologies LU 4/3/96 2.65 Infinity Broadcasting INF 12/9/98 2.44 Fox Entertainment Group FOX 11/10/98 2.39 Pepsi Bottling Group PBG 3/30/99 1.96 Genentech DNA 7/20/99 1.94 Allstate ALL 6/2/93 1.85
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Source: Thomson Financial/Securities Data
