The IPO Buzz: Thrills and Spills

They were Fortress Investment Group (NYSE: FIG) and Cellcom Israel (NYSE: CEL).
Fortress Investment Group, the New York City-based hedge fund, gave the week’s biggest thrill with an opening-day pop of 67.5 percent.
Cellcom Israel, which some call “the Verizon of Israel,” provided the biggest spill, losing 8 percent by week’s end.
The Thriller
The Fortress Investment Group’s IPO was well covered by all the financial media, but they missed a few things.
On Thursday evening, Fortress Investment priced 34.3 million shares of Class A Shares at $18.50 each to raise $634 million. The deal was priced on the high end of its $16.50- to $18.50-per-share filing range. On Friday morning, the IPO opened at $35 per share, climbed to a session high at $37 and closed at $31, UP $12.50 per share or 67.6 percent from its initial offering price.
Here’s what was overlooked.
Given the IPO’s aftermarket performance, up 100 percent from its initial offering price at its high of $37 per share, bankers will exercise the 15 percent over-allotment option or “greenshoe.” That will increase the size of the deal to 39.4 million shares and will raise the dollar volume to $729 million.
Giving the reputation of Fortress’ investing skills in managing its hedge fund, it’s curious that they left $650 million on the table.
Leaving money on the table is the difference between an IPO’s offering price and its opening price times the number of shares that were priced.
At Fortress’s opening price of $35 per share, times the soon-to-be 39.4 million shares, that gave the deal a market value of nearly $1.38 billion — up sharply from the $729 million that was raised.
Let’s flip back to May 1999 when Goldman Sachs priced its own IPO. Goldman priced 69 million shares at $53 each to raise $3.66 billion, according to available reports. The Goldman IPO opened at $76 per share for a market value of $5.24 billion. The banker left $1.58 billion on the table. If you factor in the 15 percent greenshoe, then $1.82 billion was left on the table.
Also well publicized by the media was how enriched Fortress’ management became -– and that they were.
But there was a pre-IPO investor who really cashed in big time on a three-week investment. The ink still had to be wet on the check when the deal was priced. Consider this:
On January 17, 2007, Nomura Investment Managers U.S.A., Inc., a subsidiary of Nomura Holdings, acquired for $888 million a total of 55.1 million Class A Shares. (That worked out to be $16.11 per share). On February 9, Fortress’ IPO started trading at $35 per share. Nomura’s investment had a market value of nearly $1.5 billion and an unrealized profit of $600 million in less than a month.
The Spill
Cellcom Israel was reportedly in huge demand, and it was. But, and there’s always a but, that was based on a proposed offering of 18.98 million shares at a price range of $16 to $18 each to raise $322.6 million.
It was no shock when bankers priced 20 million shares at $20 each to raise $400 million on Monday evening. That increased the deal’s size by 24 percent.
Here’s what the shock was. On Tuesday morning, Cellcom  opened at $20.30 per share and tanked.
The IPO slid to an opening-day low at $18.18 and closed the week at $18.40, DOWN $1.60 per share, or off 8 percent from its initial offering price.
The bankers cannot comment during the quiet period. But the tape told the story, as the old Wall Street saying goes.
A 24 percent increase in the deal’s size was too aggressive. At that level, bankers had scraped aftermarket orders — and money — off the table.
Had the Cellcom IPO gone out within its original filing terms, 18.9 million shares at $16 to $18 each, and the aftermarket evaluated the offering at $400 million, where it was eventually priced, then the IPO might have been a $21 stock — a $4-per-share premium from the mid-point of its $16- to $18-per share filing range.
The Week Ahead
This week’s IPO calendar lists five deals. That’s a sharp decline from last week’s 14 offerings, but that doesn’t mean things have to be dull. Consider this:
Opnext (NASDAQ: OPXT proposed), a provider of optoelectronic components for high-speed fiber optic data and voice communications networks, looks to price 16.9 million shares at $13 to $15 each to raise $236.7 million.
What sets this deal apart from the rest can be found in its latest preliminary prospectus (January 29) under “Summary Consolidated Financial Data” on page 5.
To save you from looking it up, here’s what is unusual.
In most preliminary prospectuses, when the company reports financials, the year-to-year results are shown in columns. In addition, the company breaks out its most recent financials in reporting by the three-month, six-month or nine-month period.
What’s different in Opnext’s prospectus is that its most recent quarter (its third) is broken out from its nine-month period.
This made for very interesting reading.
For the third quarter ended December 31, Opnext reported
net income of $3.2 million, compared with a net loss of $4.1 million for the same period a year ago.
Note: That was the company’s first and only profitable quarter since it was formed in 2000.
For the third quarter ended December 31, Opnext reported
sales of $61.7 million, UP 59.8 percent from sales of $38.6 million for the same period a year ago.
Think about another thriller from last week.
Accuray (NASDAQ: ARAY), of Sunnyvale, California, is the developer of the CyberKnife system for robotic radiosurgery. The company reported profits in its nine-month period. It was the first time the company was profitable, but its third quarter was not broken out the way Opnext’s was.
Nevertheless, this was not missed by IPO investors. 
Accuray closed on Friday at $29.25 per share, UP 62.5 percent from its initial offering price of $18 per share.
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