Spinoffs Lead Week’s IPOs, but Market Remains Grim
The new stock offerings calendar will be dominated by spinoffs of larger companies this week, as investors remain wary of young, unproven technology firms, once the staple of the IPO market.
Yet even the backing of a larger, more established company is not enough to guarantee respectable opening-day share price gains of more than a few percent, IPO analysts said.
With Nasdaq perilously close to the 2,000 level and about 60% off its all-time high of more than 5,000, reached only 12 months ago, the outlook for new stock offerings remains grim.
“How do you attract investors [to IPOs] when the premier companies on the Nasdaq are trading at two-year lows?” said Richard Peterson, Thomson Financial Securities Data analyst.
“You’re fighting against a horrific storm--you have the umbrella but you’re just being swept away.”
This week, Nextel Communications Inc. will price 60 million shares of its Nextel International Inc. unit, a wireless communications services provider, in an IPO managed by Goldman, Sachs & Co. and Morgan Stanley Dean Witter & Co.
The IPO would raise $720 million if the shares are sold at the top of the price range, according to a filing with the Securities and Exchange Commission. The company will have a suggested market value of $5.1 billion based on 428.1 million common shares outstanding after the IPO. The terms of the deal were cut in late February. Nextel Communications originally hoped to raise $819 million.
The underwriters have an option to buy 9 million additional shares if the 60 million are snapped up. Nextel may take in an additional $500 million from an investment by a wholly owned subsidiary of its parent.
Reston, Va.-based Nextel International, which operates in Brazil, Argentina and other countries, plans to the use the money to finance network enhancement and expansion, acquisitions of additional spectrum, working capital, and debt services requirements.
San Diego-based Titan Corp.’s SureBeam Corp. unit, a maker of food-pasteurization equipment, plans to sell 6.7 million shares at $10 to $12 each in a $73.7-million IPO this week. Merrill Lynch & Co. has the lead manager role in the deal, which is scheduled to price Thursday.
Add to that the scheduled pricing next week for Murray Hill, N.J.-based Lucent Technologies Inc.’s Agere Systems unit, and the IPO market is looking like a magnet for larger companies hoping to raise capital by spinning off smaller units.
The largest IPO deal of the year to date was KPMG Consulting Inc.. The technology consulting unit of Netherlands-based KPMG International, one of the “big five” U.S. accounting firms, surged more than 30% in its debut in early February. The offering raised more than $2 billion, but the stock is now trading more than 4% below its offering price.
“If you look at the IPO market so far this year, Peet’s Coffee & Tea is the best performer. There was much ballyhoo for KPMG Consulting, but it’s down and the IPO market is right still pretty much in the doldrums,” Peterson said. Peet’s operates a four-state chain of coffee houses with a stronghold in Northern California.
Also on the calendar for this week is QK Healthcare, a wholesale distributor of health-care products. The Ronkonkoma, N.Y.-based company plans to sell 11 million shares at a narrowed price range of $14 to $16, with Lehman Bros. Holdings Inc. and Salomon Smith Barney Inc. as underwriters.
