The IPO Buzz: Don’t Believe Everything You Read

Consider this: 38 million of the 52 million outstanding shares of Verso Paper were owned by Apollo Global Management, according to its final prospectus.
On May 15, Verso Paper, a North American-based supplier of coated papers, priced 14 million shares at $12 each to raise $168 million. That was well below the original plans to offer 18.75 million shares at $16 to $18 each to raise $318.8 million.
The launching of Verso’s IPO was not a happy experience. Ditto for its afterlife.
Here’s how it shaped up. The deal was cut by 4.75 million shares and priced $4 per share (at $12) below the low-end of its filing range ($16 to $18). It started trading $2 per share (at $10) below its offering price (at $12). On June 30, Verso Paper closed at $8.46, DOWN 29.5 percent from its initial offering price. It closed Thursday, July 3, at $6.52, DOWN 45.7 percent from its offering price.
Bruised by the Bear
One reason for the less-than-stellar performance by the VC-backed Verso IPO was market conditions.
A bear market had bitten into the Nasdaq Composite Index, the barometer of the IPO market, when it closed on Feb. 6 at 2,278.76, DOWN 20.3 percent from 2,859.12, its previous closing high set on Oct. 31, 2007.
Nevertheless, bankers did produce an IPO calendar during the past quarter. They priced 16 deals that raised $4.6 billion, according to U.S. Securities and Exchange Commission filings. It was the slowest quarter in five years. The previous low-water mark was 2003’s Q2 when bankers priced five deals that raised $1.6 billion.
However, 2008’s Q2 IPO scorecard got more than passing grades.
On June 30, excluding two SPACs, seven IPOs of the second quarter’s remaining 14 deals closed above their initial offering prices. Seven IPOs closed below their offering prices. The average gain for the 14 was 14.1 percent. As a group, they outperformed the underlying market by 20 times.
On June 30, the final day of the second quarter, the Nasdaq Composite closed at 2,292.87 — UP just 0.61 percent from its close at 2,279.10 on March 31, 2008, the last day of the first quarter.
Let’s take a look at the best and the worst from 2008’s second quarter.
The Hero
Intrepid Potash (NYSE: IPI), a Denver-based potash producer, priced 30 million shares at $32 each on April 22, 2008. On June 30, Intrepid Potash closed at $65.78, UP 105.6 percent from its initial offering price.
The Goat
Real Goods Solar (NASDAQ: RSOL), a Broomfield, Colorado-based provider of residential solar energy in California, priced 5.5 million shares at $10 each on May 7. On June 30, Real Goods Solar closed at $6.15, DOWN 38.5 percent from its initial offering price.
The VC-backed Verso Paper IPO was the second-worst-performing IPO from 2008’s Q2 crop. It was down 29.5 percent from its offering price. Maybe that’s the reason why people have disowned the deal with claims that no venture-backed IPO was priced during the quarter.
There’s a moral to this story. A winner has plenty of parents, while a loser is often an orphan.