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As IPO Market Stalls, Secondary Offerings May Present Bargains


With the market for first-time stock offerings at a virtual standstill, analysts say investors can instead look for bargains among several "secondary" stock offerings from California companies in the next few weeks.

Sometimes known as the "IPO stepchild," secondary offerings--which often come a year or two after a company's initial public offering--may be new shares sold by the company or shares offered for sale by major shareholders in the firm, such as institutional investors or large corporations that had originally helped fund the business.

While the stock usually is offered at the prevailing market price, the advantage for buyers of secondary offerings is the ability to buy a significant amount without moving the market. Also, buyers of secondaries don't pay commissions.

"This is where I'm telling investors to focus their attention," said David Menlow, president of IPO Financial Network Corp., a New Jersey data tracker.

While Menlow is most enthusiastic about a secondary deal from Irvine-based tech sensation Broadcom Corp., he says other secondary equity offerings deserve careful scrutiny from investors. Other deals in the pipeline include Standard Pacific Corp., a Costa Mesa home builder, and Intuit, a Mountain View financial software leader.

In September, several large companies were able to successfully complete secondary offerings, even amid market turmoil. Minneapolis-based Medtronic Inc., the largest pacemaker firm, successfully sold stock through Goldman, Sachs & Co., and Royal Ahold, the Dutch company that is the world's sixth-biggest supermarket owner, also completed a deal.

Still, like IPOs, some secondary stock sales are being delayed because of volatile market conditions. One of the largest deals, expected last Thursday, was from Los Angeles-based Univision Communications, the leading Spanish-language TV broadcaster. Grupo Televisa, Mexico's largest broadcaster, was expected to sell part of its stake in Univision, which would have raised $450 million.

Televisa elected to postpone the sale because of unfavorable market conditions. However, the deal is expected to be sold this week, possibly as early as today.

Probably the most closely watched secondary expected either this week or next is from Broadcom, a designer of chips that speed up Internet access over telephone and cable TV lines.

In an unusual move, Broadcom's deal comes less than six months after its IPO. But the company decided to move quickly because its stock has soared nearly 300% since the IPO, even though it has dropped recently. Also, some of the company's early investors are looking to cash out.

In its secondary offering, Broadcom plans to sell 3 million shares, only 13% of which would be new shares issued by the company. The rest would be sold by existing shareholders, according to the stock-sale filing. Some of Broadcom's customers, such as Cisco Systems Inc. and Intel Corp., are expected to sell some of the Broadcom stock they hold.

If the underwriters exercise their allotment to sell more shares, an additional 450,000 could be sold, the filing states.

After its April IPO at $24 a share, Broadcom stock jumped to $53.63 in its first day of trading. The price eventually reached almost $90, but the shares have fallen back to $62.13 on Nasdaq as of Friday.

Earlier this month, the company said it won a contract from Scientific-Atlanta Inc., maker of cable TV set-top boxes, to produce semiconductors through 2000. Broadcom will deliver at least 500,000 chips to Scientific-Atlanta next year, although terms were not disclosed.

Other California companies with secondary stock offerings in the pipeline include Avalon Bay Communities Inc., a real estate investment trust in San Jose, and Javelin Systems Inc., an Irvine developer of point-of-sale technology.


Debora Vrana covers investment banking and the securities industry for The Times. She can be reached via e-mail at or by phone at (213) 237-5918. Write to her at Debora Vrana, Business Section, Los Angeles Times, Times Mirror Square, Los Angeles 90053.

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