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California Dealin'

June IPOs Were Not so Hot, but Summer Is Still Young

July 06, 1998|DEBORA VRANA

The space shuttle, Barbie and the Internet--all were once just the dreams of another crazy Californian. What helps transform these sorts of visions into reality?

Money. Lots of it.

Each week, we will take a look at the initial public offerings, or IPOs, the stock deals sold to private investors and the bond sales by California-based companies large and small. We will analyze the performance of recent deals, preview financings and look behind the scenes at the investment bankers and lawyers who put the deals together.

These are the companies that could become the next century's Arco, Bank of America or Hughes Aircraft. Or they could be the next disaster for overeager, unsophisticated investors. You'll see the trends taking shape here first.

Although June was the worst month so far this year for IPOs, 1998 has been a strong year for these first-time stock sales, with more than 40 California-based companies raising about $1.5 billion through midyear, according to IPO Monitor, a Calabasas-based data firm. That puts 1998 on track with last year, when about $1.6 billion had been raised by this time, but still short of 1996's record pace.

So far, July promises to be active. On the smaller end of the spectrum, Los Angeles-based Team Communication Group, a firm that develops television shows for PBS and the Family and Discovery channels, is expected to raise $10.5 million in an IPO led by National Securities of Chicago. The company is developing a show based on the movie "Total Recall" and just completed 22 half-hour episodes of "Amazing Tails," featuring extraordinary pets (such as rabbits that surf).

Golden State Vintners, a Greenbrae supplier of bulk wine to wineries such as Sutter Home, is expected to raise $75.3 million through Goldman Sachs, the leading underwriter of California IPOs so far this year, with 21% of the new-issue market.

As with most IPOs, especially the hot tech offerings, the average investors will have a tough time buying stock on the first day of trading, as most of the shares will be gobbled up by institutions. Later weeks might provide more opportunity as the buzz settles.

The short July 4 holiday week was lackluster. Abgenix Inc., a Fremont-based pharmaceutical company that develops products to fight transplant-related diseases and cancer, was priced Friday at $8 a share, lower than expected, and raised $20 million through BancAmerica Robertson Stephens. The stock rose just 12.5 cents on its first trading day.

That sluggishness extended even to California's ever-popular technology sector. MIPS Technology, a Mountain View-based chip design company, raised about $16.3 million after underwriting fees in an IPO through Deutsche Morgan Grenfell with stock priced at $14 a share. MIPS, a spinoff of Silicon Graphics, saw its stock fall slightly the first day to close at $13.44 a share.

"MIPS was an unqualified failure and reinforced the shiver the IPO market has been going through for the month of June," said David Menlow, president of IPO Financial Network Corp., a data firm in Springfield, N.J. "It's going to be sloppy this month."

In the last weeks of June, several California deals were priced below expectations, offering sizes were slashed and some, like Hines Horticulture, were pulled for a week until the market improved. Hines, the Irvine supplier of plants to major chains such as Home Depot, eventually sold $56.1 million in stock on June 23, but it was priced at $11 a share--about 20% less than the bottom of its expected price range. Its price failed to rise in the first day of trading.

A San Francisco-based company, Aurora Foods, maker of such well-known brands as Duncan Hines cake mixes and Log Cabin and Mrs. Butterworth syrups, raised $259 million in an IPO through Goldman Sachs on June 25. Its stock price also failed to rise on the first day of trading.

More successful June deals by California companies included Restoration Hardware, the upscale furniture store started by Stephen Gordon in Eureka in 1980, which raised $52.8 million through (who else?) Goldman Sachs. Restoration's stock price jumped 43%, from $19 a share to $26.25, on its first trading day. As with most hot IPOs, few individual shoppers got a piece. In fact, about 80% of the stock was gobbled up by major mutual funds, and a few heavyweight (i.e., multimillionaire) investors took the rest, according to Tom Taulli, analyst with IPO Monitor.

June saw several high-tech deals become smash hits. One of those, another IPO led by Goldman Sachs, was San Mateo-based Inktomi Corp., which develops software for large computer networks. It's been the second-hottest California IPO this year, behind Broadcom Corp. Inktomi stock doubled in its first day to close at $36 a share. San Jose-based Software.net Corp., which sells computer programs and packaged software over the Internet, saw its stock rise 47.2% when it went public June 17 through underwriter Deutsche Morgan Grenfell.

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