The IPO Buzz: The Price Is Right

Investment bankers priced four IPOs during the week of May 15, 2006, to raise $667 million. By the time the curtain came down on Wall Street on Friday, all stood in the winners’ circle. That’s not bad when you consider the Nasdaq Composite Index, the barometer of the IPO market, took a shellacking.  
 
By Friday’s close, last week’s IPO offerings gained an average 13.5 percent while the Nasdaq Composite lost 2.22 percent. The Nasdaq closed at 2,193.88, just off its 2006 low of 2,180.32 set the day before, Thursday, May 18th.
 
The key to the week’s success was in pricing the deals. Bankers priced three IPOs within their original filing ranges. They were:
  • Burger King Holdings (BKC), of Miami, the world’s second-largest fast-food restaurant chain, priced 25 million shares at $17 each to raise $425 million. That was on the high end of its $15- to $17-per-share filing range. The IPO started trading on Thursday at $18 per share and closed Friday at $18.60 per share, UP 9.41 percent from its initial offering price.
  • Darwin Professional Underwriters (NYSE: DR), a Farmington, Connecticut-based liability insurance provider, priced 5.2 million shares at $16 each to raise $83.5 million. That was at the mid-point of its $15- to $17-per-share filing range. The IPO started trading on Friday at $17.10 per share and closed the day at $18.76 per share, UP 17.3 percent from its initial offering price.
  • Penson Worldwide (Nasdaq: PNSN), a Dallas-based provider of clearing services to the brokerage industry, priced 7.5 million shares at $17 each to raise $126.8 million. That was on the high end of its $15- to $17-per-share filing range. The IPO started trading on Wednesday at $19.13 per share and closed Friday at $20.25 per share, UP 19.1 percent from its initial offering price.
 
Bankers priced one IPO below its original filing range. It was:
  • Restore Medical (Nasdaq: REST), a St. Paul, Minnesota-based maker of a medical devise to treat snoring and obstructed breathing, priced 4 million shares at $8 each to raise $32 million. That was below its $9- to $11-per-share filing range. The IPO started trading on Wednesday at $8.01 per share and closed Friday at $8.20 per share, UP 2.5 percent from its initial offering price.
 
In the words of a West Coast hedge fund manager:
“They all worked.”
 
Cash and Connections
The week ahead is a big one, with seven IPOs scheduled to make their debuts. They are looking to raise $3.9 billion.
 
The largest deal of the week will be MasterCard, the Purchase, New York-based credit card/debit card company, which is expected to price 61.5 million shares at $40 to $43 each to raise $2.55 billion.
 
The most interesting deal is Vonage Holdings, the Holmdel, New Jersey-based VoIP provider, which is expected to price 31.3 million shares at $16 to $18 each to raise $531 million. (VoIP, of course, stands for Voice over Internet Protocol, or making phone calls over the Internet.)
 
According to the IPO professionals who provide the input for the IPOScoop ratings, MasterCard speaks for itself. The IPO is in demand. But the Vonage deal is starting to cool.
 
Vonage has a few negatives in its closet. Since its founding in 2000, the company has never realized a profit and it has an accumulated deficit of $467.4 million. Its founder and controlling stockholder, Jeffery A. Citron, has well-documented problems with the Securities and Exchange Commission.
 
Here’s what the preliminary prospectus reported:
 
“There is a risk that some third parties will not do business with us, that some prospective investors will not purchase our securities or that some customers may be wary of signing up for service with us as a result of the past SEC and NASD settlements and related allegations against Mr. Citron, as well as his past association with Mr. Maschler or Brennan.”
 
Mr. Brennan is Robert E. Brennan, former CEO of the now defunct brokerage firm First Jersey Securities, who “in 1995 was fined $75.0 million by the SEC for massive securities fraud, including fraud relating to penny stock sales by First Jersey Securities. Brennan also was permanently barred from the securities business and enjoined from violations of the U.S. securities laws.”
 
Between a weak Nasdaq Composite and a heavy IPO calendar, the week of May 22, 2006, should keep investors on their toes.
 
Staying on top of the IPO market
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