Path: bloom-picayune.mit.edu!snorkelwacker.mit.edu!news.media.mit.edu!americast.com!americast.com!usa-post Newsgroups: usa-today.bonus From: usa-post@AmeriCast.Com Organization: American Cybercasting Approved: usa-post@AmeriCast.com Subject: bonus Mon, Jun 8 1992 Date: Mon, 8 Jun 92 05:19:51 EDT Message-ID: 06-08 0000 BONUS: IPO market sees troubled times USA TODAY Update June 8, 1992 Source: USA TODAY:Gannett National Information Network For Payless Cashways, the hot market for new stock seemed heaven-sent. Companies across the USA had been selling record amounts of new stock to the public since early 1991, using the cash to expand, invest in research or pay off debt. So the Kansas City, Mo.-based chain of lumber-products stores decided in January to join the fun. HOW MUCH DID PAYLESS AIM TO SELL? Payless ambitiously aimed to sell 45 million shares at $10 each, raising $450 million in what promised to be one of the year's biggest initial public stock offerings. "But then the window closed," says Payless Chairman David Stanley. Slammed shut, actually. After a year of blistering IPO activity, stock investors, many of whom have taken a beating on their recent IPO investments, are crying "Enough!" WHAT ARE THE CONSEQUENCES OF THE TROUBLED IPO MARKET? The consequences for Payless and others like it are sobering. Many were hoping to pay down huge debts built up in the 1980s. Payless, for example, carries $1 billion in debt from its 1988 management takeover. Others were aching to build more stores or factories and hire employees - the kind of stuff a recovering economy needs. But the tough market for new stock is putting all that on hold. WHAT DOES THE TROUBLED IPO MARKET MEAN TO INVESTORS? The troubled IPO market also has implications for investors. Gone, at least for now, are the days when an IPO investor could buy a stock and watch it pop 20% or so the first day. Even individuals, who tend to buy IPOs after the initial one-day jump, have seen some good long-term gains. Moreover, a weak IPO market often is followed by weakness in the general market. The last time the IPO market fell apart was in the spring of 1987 - preceding a stock market crash in October. HOW FAR HAS THE IPO MARKET TUMBLED? Last year, a record 392 private companies sold $25 billion worth of new stock. The IPO craze continued this year, peaking in March when 69 companies went public to raise $4.2 billion. A full year at the March pace would double 1991's record totals. But in April, the trend began to ease. And last month, the number of private companies selling stock to the public dipped to 49, down 29% from March. They raised $2.7 billion, the lowest total in eight months and down 36% from March. BUT ISN'T THAT A FAIR AMOUNT OF ACTIVITY? That's still a fair amount of activity. But given the large backlog of about 150 companies registered with the Securities and Exchange Commission for a public stock offering, it signals a market gone sour. This year, about 50 companies have postponed IPOs; 15 have scotched them altogether. In most cases, "adverse market conditions" is the explanation. "The market for IPOs has collapsed," says Robert Czepiel, manager of the Robertson Stephens Emerging Growth Fund. "We've gone from feast to famine." WHAT DO THE SCUTTLED IPO FORCES MEAN TO PAYLESS? In Payless' case, the scuttled IPO forces it to live with more debt and higher debt payments. That robs the company of earnings it might reinvest in the company, promoting job growth. It also robs the company of money specifically targeted for new stores - roughly six to 10 a year the next few years. ARE ALL POSTPONED STOCK OFFERINGS GONE FOR GOOD? Not all postponed stock offerings are gone for good. Many companies hope the IPO market stages a quick rebound that will let them peddle stock in a few months, even if at a lower price. But it's unclear when the IPO market will rebound. WHAT WILL THE TROUBLED COMPANIES DO? Many companies whose financing needs are in limbo are rethinking capital-raising strategies. Synaptic Pharmaceutical, for example, postponed its planned $28 million IPO last month. Chief Financial Officer Robert Spence won't say how much cash the private company has on hand, but allows, "We can afford to wait." But not forever. Synaptic has enough cash to last until the middle of next year, Spence says. The fledgling biotech company is now exploring bank loans and joint ventures with drug companies. WHAT CAUSED THE TURMOIL IN THE IPO MARKET? Hard to say. Even the pros seem mystified. "I'm not exactly sure what the trigger was," Czepiel says. "Earlier this year, people couldn't get enough of the action. You were making a mistake if you didn't buy these stocks. Interest just dried up." This much is clear: Investors' appetite for risky stocks in general has cooled. High-risk biotechnology and small health-care stocks are down 35% to 40% this year. And small-company stocks, considered more risky than blue-chip stocks, have been weak. Since, Feb. 12, the NASDAQ OTC index is down 9%. HOW HAVE STOCKS OF COMPANIES RECENTLY GONE PUBLIC DONE? Not surprisingly, the stocks of companies recently gone public also have faltered. An index calculated by financial information firm IDD to reflect price changes of the 100 most recent IPO stocks has fallen precipitously this year. In January, it peaked at 45%, meaning the most recent IPO stocks had risen an average of that much. The index is now up just 0.4%. Also, only 44 of the last 100 companies to go public trade above their offer price, compared with 57 a month ago. WHAT ARE SOME NOTABLE IPO BUSTS THIS YEAR? Some notable IPO busts this year: Food additive maker Opta Food Ingredients is down 48% to $6 1:4 since its March offering. A number of biotechnology IPOs has also tanked, led by Cyto Therapeutics. It's down 41% to $6 1:2 since its March offering. DO REDUCED PRICES INTEREST INVESTORS? Even reduced prices don't interest investors. "If they were trying to sell at $12, and now ask $8, it means the company was trying to rip me off," Radlo says. "It just shows that these things are priced for companies and underwriters, not investors." WHAT KIND OF STOCKS ARE INVESTORS INTERESTED IN NOW? Investors now are sticking to more established, less risky stocks. The Dow Jones industrial average, which measures the movement of 30 blue-chip stocks, is up 6% this year, one of the few indexes with any gains. "People want to invest in stocks they already know," says Richard Franyo, managing director in charge of new stock sales at Alex . Brown & Sons, "not new ones." HOW LONG WILL THIS TURMOIL LAST? "Nothing's permanent," Radlo says. "The (IPO) market could always stage a fast comeback." But most analysts say IPOs will remain slack at least through the summer. In the end, the shakeout may prove healthy - if it doesn't lead to a broader market plunge. "This is an indigestion period," Franyo says. After their stomachs settle, large buyers of IPO stocks will likely be back. And they'll be hunting for stocks of strong profitable companies that are reasonably priced - the ones truly deserving of a public offering. Bonus Editor: Annette Semprit. (1-919-855-3491) Making copies of USA TODAY Update (Copyright, 1992) for further distribution violates federal law. This article is copyright 1992 Gannett News Service. Redistribution to other sites is not permitted except by arrangement with American Cybercasting Corporation. For more information, send-email to usa@AmeriCast.COM