Infonet Rises Modestly in Its Debut, Bucking Recent Skyrocketing Trend

However, the data communications company is pocketing more than its predecessors did.
Author:
Publish date:

The initial public offering of

Infonet Services

(IN:NYSE) on Thursday was not what investors had come to expect from the manic IPO market of the last two weeks.

The data communications company did not triple at the outset of its first day public like many recent offerings, but it still pocketed more money than its predecessors did.

Shares of the Internet service provider rose 24%, or 4 7/8, to 25 7/8 in its first hours of trading. (Infonet settled up 4 1/8, or 20%, to 25 1/8.)

The El Segundo, Calif.-based company's network reaches more than 180 countries and serves about 1,150 multinational corporations.

The company and lead underwriter

Merrill Lynch

brought in $1.077 billion with 51.3 million shares initially offered at $21. The company had $4.7 million in net income for its fiscal year 1999. The initial offering range was $18 to $21.

United Parcel Service

(UPS) - Get Report

, for comparison, went public three weeks ago and snagged $5.4 billion and but had $1.74 billion in net income last year.

"It has a lot to do with investors' appetite," said Manish Shaw, an analyst at

IPO Maven

who does not rate and has not underwritten either stock. "They are more willing to take a risk with the new economy."

Although Infonet diverged from the IPO skyrocket

trend, it kept more for itself than recent high-fliers. At its current price of 26, IPO investors picked up roughly $256 million in profits.

In contrast,

VA Linux

(LNUX)

held onto $132 million, while IPO investors reaped $920 million when the shares rose to 239 from the offering price of 30.

FreeMarkets

(FMKT)

followed suit by taking in $172 million in the offering, leaving $836 million for IPO investors after the close.

Agency.com

(ACOM)

raised $153 million, but left $295 million on the table for IPO investors on its first day.

"Companies for years have been demanding, 'Why are we not getting the money in our pockets?'" said Shaw. "Now the trend is changing so that most underwriters are comfortable pricing at a higher level."

The underwriters of any IPO are exposed to the risk of being sued by shareholders when a stock falls significantly shortly after its debut, Shaw said. But with Internet stocks that risk has been dissipating, he said.

"Underwriters are still winning though," he noted. "They benefit most when, for example, a stock is priced at 15 and it goes to 50."