Selective Market for IPOs Favors Some, Not Others

Wednesday told the tale of two IPOs and two very different issues.

One was large, a spinoff, which listed on the New York Stock Exchange and priced below its range. It closed up about 8%. The other was a whole lot smaller, an independent provider of communications technology, which listed on the Nasdaq Composite index and priced above its range. It closed up about 54%.

The dichotomy in background and performance of the two stocks underscores the varying ingredients necessary for success in a new-issue market dominated by the continued slide of the Dow and Nasdaq. Many companies have refrained from going public in this environment, resulting in a limited selection of IPOs that generally haven't caught investors' interest.

Witness the two companies that went public Tuesday. Endwave (ENWV Quote), which makes components for broadband wireless systems, and Regus (REGSV Quote), which runs business centers, experienced less-than-sparkling debuts, rising less than 1% and 6%, respectively.

"On a selective basis, the market is still there," says Joe Hammer, managing director of capital markets at investment bank Adams Harkness & Hill. "But it's becoming more and more selective."

Monsanto, a purveyor of so-called Frankenstein seeds, lumbered onto the market with dampened expectations Wednesday. There were questions of whether the market was ready to absorb a $700 million issue of 35 million shares.

To get the issue to market this week, the biotechnology company, which makes herbicide and produces genetically altered seeds, settled for a lower-than-expected price of $20 a share. The range had been $21 to $24. Consequently, shares of Monsanto ended the day up almost 8%, after earlier falling below the issue price.

"You price it to sell," notes Hammer, whose firm wasn't an underwriter in the offering.

St. Louis-based Monsanto is a spinoff of drug maker Pharmacia (PHA Quote), which was created through the merger earlier this year of Pharmacia & Upjohn and Monsanto. The agricultural products business has been hit by increased competition as well as considerable criticism for the development of genetically modified foods.

Meanwhile, Ixia (XXIA:Nasdaq) enjoyed a spectacular debut, especially in this rough market, up 83% by midday after rising as much as 101%. Trumpeted as the "sleeper deal of the week" by George Nichols, a stock analyst at Morningstar.com, the Calabasas, Calif.-based company managed to price above its range in a downmarket. It sold 5.5 million shares at $13, above its range of $10 to $12. (Morningstar doesn't underwrite stocks.)

"It must have had a very strong book," Hammer adds, referring to demand for the issue. (His firm wasn't an underwriter on the Ixia offering.)

Ixia occupies a sophisticated niche: the making of equipment that analyzes network performance. And, in a novel twist, it boasts strong financials. Ixia is profitable and has been for eight quarters, recording a 233% increase in gross profit to $22.6 million for the six months ended June 30 compared with the year before. Net revenue increased 244% to $28.3 million in the same period.