Who Says the Market's Fine?

MARKET SHARE Bob Starzynski

Who Says the Market's Fine?

One month ago I ruminated on how the initial public offering market was beating the pants off of last year's from a dollar-value standpoint. I noted that offerings in the first five months of 1998 raised 50 percent more than in the period a year earlier.

Then Orbcomm Corp. of Herndon, Va., announced July 2 that it was postponing its much-talked-about $108 million IPO, citing the "current weak state of the new issues public market." Days earlier, Time Warner Telecom Inc. of Greenwood Village, Colo., and ISE Labs Inc. of San Jose, Calif., postponed their offerings.

What gives?

These are not slouch companies. One of the first providers of worldwide communications services through low-Earth orbit satellites, Orbcomm is a pet project of Orbital Sciences Corp., Teleglobe Inc. (Canada's one-time international telecom monopoly) and Technology Resources Industries of Malaysia. And Bear Stearns & Co. and J.P. Morgan, two of Wall Street's top investment banks, are underwriters on the offering.

Time Warner Telecom, which also has strong name recognition, is a combined effort of Time Warner, US West and S.I. Newhouse's Advance Publications. Morgan Stanley Dean Witter and Lehman Brothers are underwriters for that effort.

Obviously these companies aren't IPO accidents waiting to happen. But, then again, the numbers don't lie. With $21 billion raised through IPOs during the first two quarters, shouldn't these companies be clawing to go public rather than hiding timidly by the mouth of the cave?

Maybe yes, maybe no. While companies are getting to the public market just fine, there have been some early tailspins. I examined a list of 30 companies that went public from the middle of June through July 10. Of those companies, five have either lost value or held stagnant since their IPO. Four of those five were tech companies.

"For that many companies to underperform is a definite sign of weakness," said Ken Fleming, an IPO analyst with Renaissance Capital of Greenwich, Conn.

Fleming said he has seen several other companies postpone their debuts in the last two weeks. Other companies are going public, but at prices below their expected offering range - another sign of trouble.

There is money to be found in the public market, as evidenced by dollars that have been thrown at IPOs this year, including $6 billion in the first quarter and $15 billion in the second quarter. At least four offerings this year have brought in more than $1 billion each.

But those big offerings are part of the problem, Fleming believes.

"There is so much money going into these big deals that there is little money left for the rest of the deals," he said. Of the deals that have stagnated or lost money in the IPO aftermarket over the past month, only one is a company with a market capitalization over $500 million - Allegiance Telecom Inc.

Comparatively, of the top five aftermarket performers, none are valued less than $300 million, and two - Inktomi Corp. and MicroStrategy Inc. - are worth almost $1 billion each. Both of those companies' stock prices have appreciated at least 160 percent since their offerings.

There is nothing intrinsically wrong with companies like Orbcomm and Time Warner Telecom. If anything, they are stronger companies than many others that are going through with IPOs in a crazy market. With wealthy partners backing them, they are not in dire need of capital. They can afford to wait for the storm to subside and get the best dollar for their shares.

When the IPO market softens, weaker companies in need of financing may look for acquisition suitors or seek private financing that tends to cost an arm and a leg. The stronger companies don't have to sell their souls.

For questions, comments and suggestions, contact Bob Starzynski via e-mail at bobs@pnbi.com.

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