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Bigger is better, especially when it comes to your portfolio!
by Siu-Yee Ng
As I write this, the NASDAQ composite index is still down 57% from its high in March 2000. But that’s chicken feed if you compare it to the IPO market — which saw its proceeds plunge by two thirds in the same period.
In the first four months of 2000, IPOs raised an unprecedented US$31.8 billion, with 152 companies going public. This year, the market was only able to raise a measly US$10.3 billion on 23 offerings.
Here’s the good news. In the past month, the NASDAQ has gained 27% and is down only marginally for the year. If you examine the overall picture, things are looking up. Low activity in the IPO market is a sign of a market bottom.
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IPO Follow-up
United Surgical Partners International, which owns and operates surgery centers and private surgical hospitals in the United States, Spain and the United Kingdom, has set its IPO terms. The proposed ticker symbol has been changed from SURG to USPI. 7.15 million shares are expected to price between US$13 and US$15. A date has not been set yet.
Optical switchmaker Tellium is expected to price 7.5 million shares between US$13 and US$15 during the week of May 14. But don’t be surprised if the deal is pushed back a week or two owing to market conditions. The proposed ticker symbol is TELM.
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And here’s even better news for Taipan members: as the NASDAQ is recovering, so are many of the companies in the Taipan IPO portfolio.
- Silicon Laboratories, Inc. (SLAB:NASDAQ)
has recovered 43% of its value since April. Despite posting a first-quarter loss this year, SLAB was still able to beat analysts’ estimates. If you’re still in this position, consider it a hold.
- Akamai Technologies, Inc. (AKAM:NASDAQ)
saw its stock appreciate 84% in the past month. Revenue for the quarter was US$40.2 million, compared to US$37.2 million for the previous quarter. This represents a 456.8 increase over the US$7.2 million for the first quarter of 2000.
Despite the market slowdown and the demise of many Internet companies, Akamai continued to grow its customer base. This in itself is a huge achievement. Akamai also created a Japanese joint venture with SOFTBANK Broadmedia Corporation, a subsidiary of SOFTBANK Group. This venture will be the only company to sell, distribute, market, resell and support Akamai’s Internet content delivery services in the Japanese market.
Another revenue generator later this year will be Akamai’s new EdgeSuite service. Akamai has a lot going for it. This remains a hold.
- FreeMarkets Inc. (FMKT:NASDAQ)
is also staging a rebound, jumping 84% just this past month. It recently won a contract to provide its online purchasing software to Texas Instruments Inc. As the NASDAQ recovers, so will FreeMarkets.
Life goes on
With the recovery of the market in April and May, IPOs are slowly coming back to life. The average 2001 IPO deal has actually managed to raise more capital than last year. It’s the stronger deals that are getting out of the gate. Garbage is out. Quality’s back in.
Those companies daring to go public in the face of adversity gained an average of 14% on the offering price. That doesn’t seem like much if you compare it to the fireworks of a year ago. But it certainly is better than what the NASDAQ has done since the beginning of the year.
The near-term outlook for the IPO market is improving, despite an economic slowdown. The market has discounted much of the bad news — higher-than-expected unemployment, layoffs, declining consumer confidence, etc.
In April alone, 55 Internet companies closed up shop. And this trend will most likely continue in other industries struggling with overcapitalization. No one wants to see the Internet debacle happen again. At least for the time being, investors are tired of throwing good money at bad companies.
We probably won’t see many triple-digit winners in the IPO world this year, but we’re seeing and will continue to see solid winners coming to market. Many of these IPOs, like this one, will be spinoffs from larger, mature companies.
Rainy day meal
Kraft Foods, Inc. is a household name. With its recent acquisition of Nabisco, Kraft became the largest branded food and beverage company headquartered in the United States, and the second largest in the world. (That’s based on sales of US$ 34.7 billion in 2000.) Kraft brands are sold in more than 140 countries and, according to A.C. Nielsen, are enjoyed in 99.6% of the households in the United States.
To expand Kraft’s global presence and to strengthen its position in the fast-growing consumer snacks sector, Kraft acquired Nabisco Holdings Corp., the largest manufacturer and marketer of cookies and crackers in the world (based on retail sales), in December 2000.
Kraft holds the #1 global share position in eleven product categories. And it holds the #1 share position in 23 of its 25 most profitable United States categories and in 21 of its 25 most profitable international categories. Its portfolio includes 61 brands, with 2000 revenue topping US$100 million. Seven of its brands had 2000 revenue over US$1 billion.
Kraft Foods North America accounted for US$25.3 billion, or 73%, of its 2000 pro forma revenue, while Kraft Foods International accounted for US$9.4 billion, or 27%.
A mother’s love
Kraft is currently a wholly owned subsidiary of Philip Morris Companies Inc. According to the SEC filing, Philip Morris plans to control 97.7% of the voting rights in Kraft. Who wouldn’t want a powerhouse like Phillip Morris to watch over its shining star?
Phillip Morris plans to sell 280 million shares of Kraft stock between US$26 to US$31 before July 1. But if there’s enough demand, it can sell an additional 28 million shares in the offering. This could raise anywhere between US$7.3 billion to US$9.5 billion, making it one of the biggest IPOs in United States history.
As you can see, this is a huge offering. We won’t see any huge first-day pop, but this is a long-term winner.
Credit Suisse First Boston is the main underwriter. The proposed ticker symbol is KFT.
For more information after the quiet period, contact Kraft Foods, Inc. at Three Lakes Drive, Northfield, IL 60093; Tel. 847-646-2000; Fax 847-646-6005; website: www.kraftfoods.com.
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