On Track From the USA
RailAmerica (NYSE: RA – proposed) is based in Jacksonville, Florida, and believes it is the largest owner and operator of short-line and regional freight railroads in North America. The company has a portfolio of 40 individual railroads operating in 27 U.S. states and three in Canadian provinces.
Some of RailAmerica’s holdings date back to the 1800s, such as the New England Central Railroad initially chartered as Vermont Central Railroad in 1843; Missouri and Northern Arkansas Railroad in 1883; The Florida East Coast Railway in 1885 and the Kiamichi Railroad in 1887.
In February 2007, RailAmerica was acquired by the Fortis Investment Group (NYSE: FIG) at $16.35 per share. At the time, RailAmerica was traded under the NYSE symbol of RRA.
That was the past. Now back to the present. People have been asking the question: “Why a railroad IPO?”
There are two answers — the first is because it can go public and the other has been the strength in its industrial sector – railroads.
The Dow Jones US Railroads Index (DJUSRR) closed Friday, Oct. 9, 2009 at 458.82, UP 78.2 percent from 256.33, its recent low on March 9. That has far outperformed the major indexes. The Dow Jones Industrial Average (DJI) was UP 50.7 percent over the same time span, the Nasdaq Composite Index (IXIC) was UP 68.7 percent and the S&P 500 (INX) was UP 58.4 percent.
RailAmerica’s bankers plan to price 21 million shares at $16 to $18 each to raise about $357 million. The company will offer 10.5 million shares and selling shareholders will offer 10.5 million shares. Pricing is expected Monday evening, Oct. 12, to trade on Tuesday morning, which happens to be Oct. 13th.
Lucky 13th anyone?
Floating in From China
The two IPOs coming from China are:
- China Real Estate Information (Nasdaq: CRIC – proposed), a Shanghai-based provider of real estate information and consulting services in China, is being carved out from E-House (China) Holdings Limited (NYSE: EJ). Bankers plan to price 18 million shares at $11.80 to $13.80 each to raise about $230 million. Pricing is expected Thursday evening, Oct. 15, to trade on Friday morning.
- ZST Digital Networks (Nasdaq: ZSTN – proposed) is a Zhengzhou, China-based supplier of digital and optical network equipment to cable system operators in the Henan Province, which is the country’s most populous province. Bankers plan to price 3.13 million shares at $7.50 to $8.50 each to raise about $25 million. Pricing is expected during the week of Oct. 12.
The aftermarket performances by IPOs from China have been either pops or flops. Seven of the 37 U.S. IPOs priced this year have been from China, according to the U.S. Securities and Exchange Commission’s filings. As of Friday’s close, this year’s top three aftermarket winners were Chinese and the year’s bottom four losers were Chinese.
The Year’s Winners:
- Lihua International (Nasdaq: LIWA) closed on Friday at $9.90, UP 147.5 percent from $4 per share, its initial offering price.
- Duoyuan Global Water (NYSE: DGW) closed on Friday at $38.90, UP 143.1 percent from $16 per share, its offering price.
- Changyou.com (Nasdaq: CYOU) closed on Friday at $31.37, UP 95.4 percent from $16 per share, its offering price.
The Year’s Losers:
- Shanda Games (Nasdaq: GAME) closed on Friday at $10.52, DOWN 15.8 percent from $12.50 per share, its initial offering price.
- Nivs Intellimedia Technology (NYSE-AMEX: NIV) closed on Friday at $2.91, DOWN 16.9 percent from $3.50 per share, its offering price.
- Chemspec International (NYSE: CPC) closed on Friday at $7, DOWN 22.2 percent from $9 per share, its offering price.
- CDC Software (Nasdaq: CDCS) closed on Friday at $8.80, DOWN 26.7 percent from $12 per share, its offering price.
Let’s take a look at last week’s passing parade.
When Things Go Wrong
Don’t believe everything you read in the financial press. It just might be wrong. Consider last week’s Banco Santander (Brasil) S.A. (NYSE: BSBR) offering.
The financial media continually reported that Banco Santander increased its offering size to 600 million units, up from 535 million units, and priced the deal at U.S.$13.40 each to raise U.S.$8.04 billion – a record size for this year’s IPO.
Wrong, wrong, wrong.
The deal was never increased to 600 million units. It’s your choice to believe the financial media or to believe the cover of the Banco Santander (Brasil) prospectus (check it out). The final prospectus stated 525 million units at U.S.$13.4033 each, to raise U.S.$7.03 billion. That’s a difference of over U.S.$1 billion –- some difference. (The late U.S. Senator Everett Dirksen, Republican from Illinois, who often was credited with making this quip: “A billion here, a billion there, pretty soon you’re talking real money!”)
Next — the deal was not really an IPO, but a public offering of units consisting of 55 common shares and 50 preferred shares, both trading on BM&FBOVESPA under the symbols “SANB3” and “SANB4.”
The deal was priced at R$L23.50 per unit or near the high end of its R$L22 to R$L24 filing range. Banco Santander units started trading like a secondary opening at U.S.$13.30, DOWN 10 cents from U.S.$13.40 per unit, its offering price.
What has been working these days in the U.S. secondary or follow-on market is pricing an offering in the hole — below its previous close. Judging from the way the Banco Santander offering traded, the pricing discount was not enough for 525 million (or 600 million) units to see an opening premium.
IPOScoop normally does not rate secondary or follow-on offerings. The only honest call anyone can make is “flat to a shot.” Due to the notoriety of the Banco Santander deal, and against our better judgment, IPOScoop gave it 2-Stars. This was based upon consensus calls from investment professionals, which ranged from a quarter to three- quarters of a point premium. Even the experts got fooled.
Note: The IPO handicappers have a 10-year track record of being right on their calls nearly 80 percent of the time.