The IPO Buzz: Reading the Market

Bankers got two deals priced. One did well in the aftermarket, one closed its opening day below its initial offering price, and one other deal on the IPO calendar was postponed.
Here’s how they fared:
  • Home BancShares (Nasdaq: HOMB) priced 2.5 million shares at $18 each on Thursday evening. That was at the top end of its range of $16 to $18 a share. On Friday morning, the IPO opened at $21.18 per share, ran up to a session high at $21.95 and closed at $20, UP $2 per share, or 11.1 percent above its initial offering price. Home BancShares is an Arkansas-based bank holding company operating 48 branches in the Southeastern United States.
  • Techwell (Nasdaq: TWLL) priced 5.5 million shares at $9 each on Wednesday evening. That was below its $11- to $13-a-share filing range. On Thursday morning, the IPO opened at $9 per share, sold as high as $9.30 and closed on its session low at $8.75, DOWN 25 cents, or off 2.8 percent from its IPO price. But not to worry. On Friday, Techwell closed at $9.11 per share. Techwell is a San Jose-based fabless designer of mixed-signal integrated circuits for video applications.
  • Hexion Specialty Chemicals (NYSE: HXN proposed), a Columbus, Ohio-based producer of thermosetting resins, postponed its pending offering of 19 million shares at $25 to $28 each “due to market conditions.” Bankers had hoped to raise $503.5 million.
Deciphering “Market Conditions”
The Hexion deal has been in the IPO pipeline since May 7, 2004, when it filed to go public as Borden Chemical to raise $200 million. Borden had been around since 1899 and its stock was traded on the New York Stock Exchange under the symbol of “BN.” In 1995, affiliates of Kohlberg, Kravis Roberts & Co. bought Borden.
The May 2004 filing didn’t go anywhere and the company was acquired by affiliates of Apollo Management. Then the fun began.
About 11 months later, on April 25, 2005, Borden Chemical filed to go public under the name Hexion Specialty Chemicals, looking to raise $800 million. On Sept. 16, 2005, bankers set proposed terms to offer 20 million shares at $21 to $24 each to raise $450 million.
Worth noting: Insiders were to sell 8.4 million shares of the offering and were looking to pocket about $189 million. At the time, the company was also pricing a preferred stock deal. Between the proceeds from a preferred stock offering, additional borrowings and the expected proceeds from its share of the sale of the common stock, Hexion planned to pay a special dividend of $500 million, which would be passed along to Apollo Management and other individuals. 
The deal didn’t fly.
Fast forward to June 2, 2006, and another attempt to go public.
This time, Hexion would offer 19 million shares at $25 to $28 each, but with a slightly different caveat.
Worth noting: Insiders were to sell 15.2 million shares in the offering and were looking to pocket about $400 million. By June 2006, insiders had already collected about $550 million in special dividends from the sale of preferred stock in May 2005.
The deal didn’t fly, again – “due to market conditions.”
Actually the market conditions were not all that bad. Consider this:
Even though the Nasdaq Composite Index, the barometer of the IPO market, closed at 2,121.47, DOWN 0.4 percent last week, the 2006 IPO Scorecard improved.
Through Friday, June 23, 83 IPOs had been priced in 2006, excluding unit offerings consisting of common stock and warrants, according to available reports.
Of the 83 deals, 41 closed above their initial offering prices, 42 closed below their offering prices and the average gain was 4.14 percent.
Through Friday, June 16, 81 IPOs had been priced.
Of the 81 deals, 35 closed above their initial offering prices, 46 below their offering prices and the average gain was 3.95 percent.
And there is more.
This week, starting on Monday, June 26, “market conditions” will encourage bankers to price 11 IPOs. They hope to raise $1.34 billion.
On that list are two deals with a 3-Star SCOOP rating (based on the Street Consensus of Opening Premiums) and there might be a sleeper or two among the rest. 
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