Vonage Holdings Raises $531 Mln in Initial Share Sale)

2006-05-23 19:13 (New York)

(Adds analyst's comment in fourth paragraph.)

By Rebecca Barr and Elizabeth Hester
May 23 (Bloomberg) -- Vonage Holdings Corp., a money-losing pioneer in Internet phone service, raised $531.3 million in an initial public offering today as it seeks to keep ahead of competitors such as AT&T Inc. and Comcast Corp.

Vonage sold 31.3 million shares, or 20 percent of its stock,for $17 each, the company said today in a statement distributed by PR Newswire. The price was in the middle of the $16 to $18 a share range the company forecast in a regulatory filing.

Investors are betting Vonage can maintain its lead against phone and cable companies that sell similar services. AT&T, Comcast and Verizon Communications Inc. have piled into the market since Vonage started four years ago, and price cuts may follow, analysts said. The sale values Holmdel, New Jersey-based Vonage, backed by 3i Group Plc and Bain Capital LLC, at about $2.65 billion.

``The question for Vonage is how soon can they break even,''said Francis Gaskins, president of IPOdesktop.com. ``They're losing a lot of money relative to their market capitalization and the money raised won't carry them very far.''

Underwriters may sell an additional 4.69 million shares to meet demand.

Losses at Vonage totaled $361.2 million in the past three years as the customer base expanded to 1.6 million. The company in February named Tyco International Ltd. executive Mike Snyder as chief executive officer, replacing founder Jeffrey Citron.

Brilliant Marketing

``Vonage has done a brilliant job in marketing,'' said David Menlow, president of IPOFinancial.com, based in Millburn, New Jersey. ``They were the first in the market with this technology, but it's very clearly stated in the prospectus that there will be more similar technology from other companies.''

San Antonio-based AT&T, the largest U.S. phone company, offers a Web-based service from $19.99 a month for unlimited local calls, plus 4 cents a minute for long distance. Philadelphia-based Comcast, the largest U.S. cable TV company, offers a service for $39.95 a month that gives unlimited local and long-distance calling and discounted international rates.

Both companies have the advantage over Vonage of being able to package Internet-calling with their main products to cut costs and build customer loyalty.

Vonage, whose backers also include Meritech Capital Partners, Institutional Venture Partners and New Enterprise Associates, set aside 15 percent of the shares for customers who joined before Dec. 15, 2005. That may help limit the number of people who move to alternative providers, or so-called churn.

The shares will trade on the New York Stock Exchange under the symbol VG. Citigroup Inc., Deutsche Bank Securities and UBS Investment Bank are arranging the sale with help from Bear Stearns Cos., Piper Jaffray Cos. and Thomas Weisel Partners.