Market's Sneeze Gives IPOs the Flu

Hexion, Dresser Offerings Are Delayed as the Debut

Of Techwell Trades Lower

By LYNN COWAN

Wall Street Journal, June 22, 2006; Page C6

Skittish investors continued to rattle the IPO market this week, as two large deals were sidelined and a smaller one declined after pricing poorly.

The initial public offering of stock in Hexion Specialty Chemicals Inc., which was expected to begin trading today on the New York Stock Exchange, was postponed. The company announced yesterday that the reason was "adverse market conditions." Hexion, which was seeking to raise as much as $532 million, cited volatility both in the stock market and in its sector as a factor in its decision.

Little more than an hour before Hexion's announcement, energy-industry equipment maker Dresser Inc. canceled its IPO, saying it wanted to focus on accounting issues at the company. Last month, Dresser announced it will restate its financial reports from 2004 through the third quarter of 2005.

Dresser, a former Halliburton Co. unit, had registered to sell $575 million of stock when it first filed for an IPO in September 2004, but hadn't made any additional filings on the deal since December of that year.

Meanwhile, semiconductor designer Techwell Inc. priced its IPO yesterday through Lehman Brothers Holdings Inc. and Société Générale's Cowen & Co. at $9 a share, below its expected range of $11 to $13 -- and then traded lower to finish at $8.75, down 2.8%, on Nasdaq. Techwell is the ninth stock to price below its range out of 12 total IPOs this month.

While both Dresser and Hexion had a change of heart on the same day, market observers said it doesn't augur a stampede of IPO postponements and cancellations in the weeks ahead.

"I don't see the beginning of a trend here," said Richard Schultz, president of Triad Securities in New York, a broker-dealer that follows new-stock issuance. "I don't think everyone is going to pull their deals just because a couple did."

Dresser's offering had largely been considered a long shot anyway after a two-year delay, and Hexion's wasn't expected to price or perform well, given the large amount of debt it carries, said Francis Gaskins, president of research firm IPODesktop.com.

"It's a dull, overleveraged company," said Mr. Gaskins of Hexion. "In the March quarter, the company's interest payments were nearly 60% higher than its profits."

The IPO market has been through a rocky period since the broader stock market began its decline in May. Only one company, ethanol company VeraSun Energy Corp., has priced above its expected range in June.

At the same time, there still appears to be investor interest in IPOs, albeit at lower prices than what most issuers would like to see. Although most deals have priced poorly, the majority have managed to close at or above their offering prices on their first days of trading. Next week, as many as eight deals could come public, and last week a total of five priced and began trading.

Write to Lynn Cowan at lynn.cowan@dowjones.com