Right Now, Lockups Are a Foolish Game

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What a crazy ride, this market. And when, oh when, will the craziness end?

Nobody knows for sure, but I'm of the belief that owning the additional risk that lockups have come to represent is foo-oo-oo-lish.

Think about it: In order for a company's stock to benefit from a lockup expiration, there must be a meaningful number of buyers willing to step up. In the case of technology deals coming off of their lockups, it looks like there are more sellers than buyers. Sad, but true.

The volatility we see nearly every day reminds me of weekends at Ben Holmes' house. His boys have a swing set and they get the thing going back and forth, higher and higher until its legs start to lift off of the lawn. Holmes laughs his head off and I chuckle to myself, but at any moment those kids are going to get launched into the next county.

With the markets behaving like a swing set, it becomes more important to rest on solid ground. This creates a yearning for stability, and the desire to be in cash. Nobody wants to be a paper millionaire today -- only to turn into paycheck man tomorrow. This lack of stability prompts otherwise rational people -- the believers from these companies -- to sell their holdings to generate the cash that makes them feel more stable.

Pay close attention to the number of shares being released when compared to the number of shares outstanding. For example, the percentage of shares coming out of the ONI Systems (ONIS:Nasdaq - news - boards) lockup is relatively small. This gives you an idea of the relative impact of that lockup expiration. Considering the current volatility of the market, I feel no compelling reason to be positive about any of the technology deals that are nearing lockup expirations.

By the way, did anyone have the conviction to get short on New Focus (NUFO:Nasdaq - news - boards) as the result of my warning regarding its weighty lockup expiration? That stock has given up 40% of its value since that column appeared. Remember, you don't always have to own 'em. Getting short, with reasonably tight stops in place, can make you some profit just as easily in a market like this.

Here's the list: (For more on lockups and why they matter, check out Holmes' primer on the subject. A more recent take on Lockups appears here .)

Lockup End	Deal Name		Released	Outstanding
11/18/00	INTEGRATED CIRCUIT SYSTEMS (ICST:Nasdaq)		51,751,564	64,519,257
	CS First Boston	SEC Filings	80.21%*	News
11/20/00	UNIVERSAL COMPRESSION HOLDINGS (UCO:NYSE)		5,818,420	13,260,021
	Merrill Lynch	SEC Filings	43.88%*	News
11/21/00	CENTILLIUM COMMUNICATIONS (CTLM:Nasdaq)		25,512,353	32,883,986
	CS First Boston	SEC Filings	77.58%*	News
11/21/00	SONUS NETWORKS (SONS:Nasdaq)		99,757,738	183,308,070
	Goldman Sachs	SEC Filings	54.42%*	News
11/26/00	NRG ENERGY (NRG:NYSE)		-	-
	Salo Smith Barney	SEC Filings	-*	News
11/27/00	FIRST HORIZON PHARMACEUTICAL (FHRX:Nasdaq)		8,439,643	12,919,143
	Chase H and Q	SEC Filings	65.33%*	News
11/28/00	CROSSWORLDS SOFTWARE (CWLD:Nasdaq)		20,022,672	26,308,364
	Chase H and Q	SEC Filings	76.11%*	News
11/28/00	ONI SYSTEMS (ONIS:Nasdaq)		4,128,828	131,683,952
	Goldman Sachs	SEC Filings	3.14%*	News
11/29/00	EXULT (EXLT:Nasdaq)		43,944,640	84,957,597
	Merrill Lynch	SEC Filings	51.73%*	News
Source ipoPros.com			* Released shares as a percentage of outstanding.

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Michael Falbo is an analyst for ipoPros.com, a Boulder, Colo.-based research boutique (now a wholly-owned subsidiary of TheStreet.com) specializing in the analysis of equity syndicate offerings. This column is not meant as investment advice; it is instead meant to provide insight into the methods of new and secondary offerings. Neither Falbo nor his firm has entered indications of interest in any of the companies discussed in this column. This Week in IPOs column appears Sundays, This Week's Secondaries appears Tuesdays, Upcoming Lockup Expirations appears Wednesdays and The Quiet Period appears on Fridays. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Falbo appreciates your feedback at [e-mail].