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November 1, 2000

Chasing the Big Boys

By Omar Sacirbey

Chase Manhattan Corp.'s purchase of J.P. Morgan & Co. might not seem very exciting to professional IPO players.

But that's only when it is compared with Credit Suisse First Boston's takeover of Donaldson, Lufkin & Jenrette, which instantly vaulted Credit Suisse into the top echelon of equity underwriters.

As of mid-year, the two banks didn't crack the top 10 list of IPO underwriters worldwide, as J.P. Morgan finished 11th and Chase followed at No. 12, according to Thomson Financial Securities Data.

Historic Players

But for the two venerable parties the acquisition is a move towards the big leagues. The deal is expected to close in the first quarter of 2001.

For Chase, the acquisition is a step - and probably not its last one - in joining the Who's Who of underwriting.

The purchase of J.P. Morgan represents Chase's second coup in the past 12 months. It added a Street giant that analysts see as a nice complement to Chase H&Q.

(Chase H&Q is the product of Chase's December acquisition of San Francisco boutique firm Hambrecht & Quist. )

To be sure, Morgan won't make a major impact in the IPO league tables. Morgan didn't begin IPO underwriting until the mid-'90s because of legal restrictions.

In 1996, the bank was only in 15th place among IPO underwriters with a 1.1 percent market share for all equities underwriting activities.

It has gained some ground since then, but as of the second quarter it had just a 1.4 percent share. Chase, for its part, had a slightly lower share at 1.3 percent.

That said, the deal does vault the combined entity into the coveted top 10 of underwriting firms, and it also bolsters its team of analysts.

Chase currently has a stable of some 50 analysts covering over 500 companies. Technology, telecommunications, and life sciences are their specialties.

Top Analysts

As of press time, the deal would add big names from J.P. Morgan, such as biotech analyst Franklin Burger, who was ranked number one by First Call Thomson Financial among biotech analysts.

Other noteworthy J.P. Morgan analysts include Greg Guiling, covering telecom equipment, Jose Linaris, covering Latin American telecom, and equities analyst Mary Bourque.

Altogether, Chase and J.P. Morgan have been lead-managers for 28 deals worth some $2.4 billion, with combined returns of 19.13 percent. (All totals are year-to-date Sept. 13, except where otherwise stated.)

Dismal IPO

Separately, Chase H&Q lead-managed 22 deals, raising more than $1.5 billion with returns of 31.61 percent.

J.P. Morgan, on the other hand, has led six deals, raising $886 million. Its returns, however, are actually 3.63 percent below offering, due to a dismal Activecard SA (Nasdaq: ACTI) IPO.

Without ACTI, J.P. Morgan's IPOs are 54.68 percent above offering.

Chase H&Q had 15 deals in registration worth $1.053 billion, while J.P. Morgan had one deal in registration, Monolithic Systems (Nasdaq:MONY), which filed in early August.

Major League Player

In comparison, Credit Suisse First Boston and DLJ, would have been ranked as the third largest IPO underwriter in 1999. That is if the two had operated as a combined entity.

About $9.76 billion in proceeds would have been raised, giving them a market share of 15.7 percent.

Nonetheless, while Credit Suisse and DLJ combined would have raised less than the number one and two IPO underwriters, it handled twice as many deals as them.

That indicates its reliance on more companies from the high-tech sector with more modest financing needs and abilities.

The deal was another step by Credit Suisse to strengthen its investment banking arm, starting in 1988 with its purchase of First Boston.

Omar Sacirbey is managing editor of The IPO Reporter, a sister publication of Traders Magazine.