Knoll Fighting for Post-IPO Respect

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By Erle Norton
Staff Reporter

After a weak initial public offering on Friday,

Knoll

(KNL) - Get Report

shares are treading water.

The offering, led by

Merrill Lynch

and

Credit Suisse First Boston

, was priced Friday at 17 a share, below the 19-to-22 a share discussed in the company's filings with the

Securities and Exchange Commission

. Since then Knoll's stock has edged up, trading just under 18 a share. Knoll issued 8 million common shares in the offering.

Knoll's inability to issue stock in its preferred offering range makes the company stand-out like a bad roll-top desk when compared to a host of strongly performing office-furniture stocks.

"In general, the stocks in this group continue to perform exceptionally well," says Walter Morris, an analyst with Milwaukee-based

Robert W. Baird & Co.

, which was not a managing underwriter in the Knoll offering. "And there's no change in the industry's favorable fundamentals." Morris hasn't initiated coverage of Knoll, though he intends to shortly.

For instance, competitor

HON Industries

(HONI)

is trading above 48 a share, near its 52-week high of 49 1/4.

Knoll's IPO was the subject of a

March 27 story in

The Street

.

Worries for investors apparently included Knoll's high debt level -- an estimated $290.8 million after the stock offering, which means that "a substantial portion of the company's cash flow from operations must be dedicated to fund scheduled payments of principal and debt service and will not be available for other purposes," the prospectus says.

Knoll's key officers also only have one-year employment agreements, which was pointed out in a negative-tinged Heard on the Street in

The Wall Street Journal

on April 9.

Finally, Knoll faces stiff competition from the likes of Herman Miller

(MLHR) - Get Report

, HON Industries and Steelcase.

But Knoll is trying to build on its successful turnaround, which it started when it was a unit of

Westinghouse Electric

(WX)

before being sold in early 1996 to Warburg Pincus Ventures, a unit of

E.M. Warburg Pincus

, NationsBanc Investment, a unit of

NationsBank

(NB)

and members of management.

The Greenville, Pa.-based company is aiming for more sales and more market share, in part by emphasizing seating, tables, desks and storage furnishings, where the company is weak. Its market share in seating was 2.1% and in tables it was 1.8% last year. By comparison, the company controlled 11.2% of the office systems market.

Knoll also plans to beef up its sales force and target more smaller and medium-size businesses.

A Knoll spokeswoman said the company was "very pleased" with the offering and considered the price "fantastic." But she attributed the lower-than-expected price to the volatile stock market and the recent tough environment for IPOs. Merrill Lynch didn't return a phone call seeking comment.