IPO View-Market slump means chilly forecast for June IPOs

Fri Jun 9, 2006 3:03pm E

By Justin Grant

NEW YORK, June 9 (Reuters) - Although the U.S. initial public offering market is scheduled to pick up steam next week, shaky market conditions might prompt some companies to debut at lower prices, or simply postpone their deals altogether, analysts said this week.

Since May 22, three companies have delayed their IPOs, citing market conditions as the chief culprit. Meanwhile, the first week of June has been cool, with only LoopNet Inc. (LOOP.O: Quote, Profile, Research) going public.

Six IPOs are on deck next week, beginning Monday with Singapore-based semiconductor company Verigy Ltd., which expects its shares to trade on the Nasdaq under the ticker symbol "VRGY" (VRGY.O: Quote, Profile, Research).

"Coming off a bad market and some bad IPOs like Vonage (Holdings Corp. (VG.N: Quote, Profile, Research)), there's a lot to fear on the 'Street'," said independent IPO analyst Tom Taulli. "The market is so bad, we may see a lot of withdrawals next week."

The blue-chip Dow Jones industrial average <.DJI> dipped below 11,000 for the first time in three months this week, which could trigger further declines in the market, analysts said.

IPOs in particular, analysts said, are vulnerable to such dips.

"If you have a deal with merit and you're coming into a soft market, you have a choice of trying to ride it out and keep your valuations," said Ben Holmes, publisher of Morningnotes.com, an independent research firm based in Boulder, Colorado.

"If they're desperate for cash, their option is to lower pricing terms and raise less money

Four of the last five companies to debut on the Nasdaq have gone that route, lowering their forecast prices following a rough May for the index, which saw its steepest decline since July 2004.

June is on pace to be the slowest month this year for the U.S. IPO market, with 10 companies scheduled to make IPOs in deals that could be worth about $1.73 billion, according to Dealogic.

That would make June the worst month for IPO volume since October, when 17 companies came to market in deals totaling $1.8 billion, Dealogic said.

"There's just a general weakness in the market," said Francis Gaskins, an independent analyst and president of IPO Desktop.

"There have been a lot of filings since May. They're lined up, but they can't swim upstream. That whole month was active."

Indeed it was, with 41 companies registering with the U.S. Securities and Exchange Commission for IPOs that could be worth $7.7 billion, according to Dealogic.

In all, 51 companies are awaiting their market debuts in deals that could be worth $9.4 billion, the data provider said.

"These kinds of markets will have some impact on these deals," said Sal Morreale, who tracks IPOs for Cantor Fitzgerald in Los Angeles. "Outside of VeraSun, everything is a 'wait and see' type attitude."

Ethanol producer VeraSun Energy Corp., which is expected to command the attention of IPO investors next week, raised the size of its IPO on Friday; the company plans to trade on the New York Stock Exchange under the ticker symbol "VSE.N" (VSE.N: Quote, Profile, Research).

The company now plans to float 18.25 million shares at an estimated price range of $21 to $22 each, in a deal that could be worth $441.54 million, according to Dealogic.

The Brookings, South Dakota-based company originally planned to sell 17.25 million shares in the range of $18 to $20 each.

VeraSun is the second-largest U.S. ethanol producer behind Archer Daniels Midland Co. (ADM.N: Quote, Profile, Research).

Ethanol is a crop-based gasoline additive that is increasingly being used in U.S. cars and is on the path to trading like a mainstream world commodity as consumers turn to fuels from renewable "green" sources such as corn, sugar and soybeans.

"Investors have to understand," said IPO analyst David Menlow, "that ethanol does not appear to be a flash in the pan."