Fueled by one of the biggest surges in stock market history, several companies in the San Fernando Valley in recent weeks have decided to raise money by selling stock publicly.
Late last month, Burbank-based TeleQuest began offering its stock for the first time. Woodland Hills' 20th Century Industries, the parent of 20th Century Insurance, disclosed that it will soon offer 4 million shares.
Other area companies selling stock publicly in recent weeks include Amgen in Newbury Park, Veritec in Calabasas and Traditional Industries in Westlake Village. Terminal Data in Woodland Hills disclosed last week that it will offer $7.5 million in convertible subordinated debentures, or long-term debt instruments that can eventually be converted into shares of common stock.
In addition, executives with two other companies, Tandon in Chatsworth and Quadratron in Sherman Oaks, recently have said they might sell stock.
Some of the firms, such as 20th Century and Amgen, already have stock that is traded publicly. Other firms, such as TeleQuest and Veritec, made their first stock offerings.
Indication of Bull Market
The offerings are a barometer of the overall strength of the stock market, which until last week was regularly setting record highs, and of a strong market for new stock offerings.
"The market is good. There's opportunity. So why not?" said Jeffrey Kuhn, a vice president in Kidder Peabody's corporate finance department in New York.
The Dow Jones average of 30 industrials, the most widely followed market index, has climbed nearly 25% since November, 1985, closing Monday at 1,735.51. The Dow, however, has fallen more than 83 points in the past week.
A strong market can allow a company to raise more money than planned by selling the same amount of stock at a higher price. Or, the firm can raise the amount of money needed while offering less stock--thus selling off a smaller stake in the firm.
Kidder Peabody recently helped Amgen, a biotechnology company, raise $32.5 million that will be used to finance clinical testing of its products, expanded manufacturing and research and development.
Advantages to Stock
The Amgen offering shows why companies find it advantageous to raise money by selling stock in a strong market rather than tapping other sources of financing.
For about a year, Amgen considered a long list of financing methods, including an elaborate one involving the sale of limited research and development partnership units, said Philip J. Whitcome, the company's director of strategic planning. One disadvantage to that method was that Amgen would be selling off a chunk of its profits from future products, he said.
The company finally opted for a conventional stock offering after the price of its shares, selling at less than $6 a year ago, began climbing along with those of other biotechnology companies. Two weeks ago, Amgen sold 2.3 million shares at $15 each. The stock closed Monday at $18.50.
Strong Market for New Stocks
The market has been strong for initial public offerings. Two weeks ago, for example, TeleQuest, a Burbank-based maker of offbeat telephones, sold 900,000 shares at $13 a share, raising $11.7 million.
There were 118 initial public offerings of stock nationwide through the first quarter, raising more than $2.2 billion, according to the Institute for Econometrics Research in Fort Lauderdale, Fla., publishers of a newsletter called New Issues. In the same period last year, 104 offerings raised only $1.2 million.
Officials from the institute expect the stock market, and the market for new public stock offerings, to continue to be strong through the first half of the year.
But such offerings can be risky. The bull market in 1983 sparked a host of new stock issues, especially in technology-related companies. The value of some of those stocks, however, quickly sagged the following year when the computer industry went into a slump.
Besides raising money to finance operations, public offerings also can allow management and founders of companies to make a tidy sum. For example, TeleQuest's three principal officers--Robert E. Lee, the chief executive, and Eric Geis and Thomas P. Eisenstadt, both executive vice presidents--sold a total of 110,000 shares during its offering for $1.4 million.
Besides the 4 million shares 20th Century is offering the public, 600,000 shares of the company's stock are to be sold by five of its shareholders. According to a preliminary prospectus, they include Chairman Louis W. Forster, who plans to sell 300,000 shares, and Director Rachford Harris, who plans to sell 200,000 shares.