Commentary

Jared Dillian
Traders Magazine Online News

Was it Worth It?

In this piece from 10th Man, author Jared Dillian discusses how the ETF revolution is less about ETFs and more about indexing; about how people have come to view stocks less as stocks and more as blobs of stocks.

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November 1, 1998

Happy Days Will Return

By John E. Fitzgibbon, Jr.

Once upon a time, in a land called happiness, initial public offerings exploded like popcorn. Now that seems like a long, long time ago. The world has since turned several times and the financial markets have changed.

The IPO market of yesteryear is no more. It has become a market of selected IPOs. And the September and October new-issues calendar underscores the dramatic change.

In early October, Swisscomm AG (NYSE:SCM) was priced by co-lead managers Warburg Dillon Read and J.P. Morgan & Co. The new issue opened at a premium better than two points per share. According to some gurus quoted in published reports, Swisscomm was a test for the revival of the new-issues market. But that wasn't the case.

In this day and age, the only IPOs that will make it to market have something special about them. Swisscomm, however, did not have that special quality.

The company is an established money maker and a dominant player in its industry. It is the principal provider of telecommunications in Switzerland, much like Deutsche Telecom (NYSE:DT) in Germany, France Telecom (NYSE:FTE) in France and Tele Danmark (NYSE:TLD) in Denmark.

The Swisscomm IPO was priced to sell. Its 22.1 million ordinary shares were offered at CHF340 each ($25.30 in U.S. dollars), near the low end of its initial filing range of CHF330 to CHF410. Reports circulated that the deal was oversubscribed with a three-fold demand for the available supply of shares. The stock, listed on the Swiss Bourse, its primary market, closed at CHF376.5, up 10.7 percent.

Following the lead from Zurich, the IPO opened at $28 a share on the New York Stock Exchange, up $2.70, again a 10.7 percent increase. A welcome sign? Sure, but hardly a flame to ignite the U.S. IPO market.

How about eBay (Nasdaq:EBAY)? Some heralded it as the savior to awaken the new-issues market. As we know, the IPO soared to an opening day gain of 163 percent, but it was an isolated case. After eBay, the new-issues market turned cold.

The German computer-software server company iXOS Software AG (Nasdaq: XOSY) opened last month at a small premium. Goldman, Sachs & Co. priced 605,000 ordinary share (three million American Depositary Receipts) at DM170 ($20.75 in U.S. dollars), near the bottom of its DM165 to DM195 filing range. The IPO opened in the U.S. at $21.

Once again, the Munich-based iXOS had something about it. The company was a money maker. For the year ending June 30, 1998, the company reported earnings per share of 68 cents.

For the rest of the new-issues calendar, the usual suspects small-cap deals keep getting dragged along from week to week. Nevertheless, as of press time, there are some big names in registration, such as Fox Entertainment, (NYSE:FOX), Infinity Broadcasting (NYSE:INF), Korn/Ferry (NYSE:KFY), MONY Group (NYSE: MNY) Prodigy (Nasdaq: PRGY) and Sprint PCS (NYSE:PCS), among others.

One nice thing about Wall Street is that it is cyclical. Let the world turn a few more times, and the market for IPOs will swing back to happiness.