Morgan Standoff: NextCard Goes Next Door for IPO as Meeker Keeps Her Distance

The Internet credit card firm, feeling slighted by its lack of contact with the high-profile analyst, flees to DLJ.
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Internet consumer-credit provider

NextCard

dumped Wall Street powerhouse

Morgan Stanley Dean Witter

(MWD)

as the lead underwriter for its IPO just as preliminary work on the road show was getting under way.

The spat, which will cost Morgan Stanley an estimated $3 million in fees, came after the investment bank promised but failed to deliver frequent contact with its famed Internet analyst, Mary Meeker, according to two people involved in the deal. Meeker, whose backing

The New Yorker

recently said "is a big step toward billionairedom" for Internet-company insiders, was supposed to meet with NextCard officials in preparation for picking up research coverage after the IPO.

NextCard's board angrily complained about two weeks ago to Morgan Stanley about its lack of contact with Meeker. By Thursday, still dissatisfied with Meeker's participation, NextCard decided to cut Morgan Stanley out of the deal, the two people say.

"Morgan didn't deliver on the level of service it was promising," which included Meeker being involved, says one of the people.

Meeker and Rex Golding, the Morgan Stanley investment banker who was working with NextCard, were traveling and couldn't be reached for comment. A Morgan Stanley spokeswoman declined to comment for the record. NextCard officials didn't return three phone calls seeking comment.

NextCard, an Internet consumer credit company based in San Francisco, filed an amended IPO prospectus Friday with the

Securities and Exchange Commission

, naming

Donaldson Lufkin & Jenrette

as its new lead manager. In the company's original filing, Morgan was lead and DLJ was co-manager along with

Thomas Weisel Partners

and

U.S. Bancorp Piper Jaffray

. The status of Weisel and Piper Jaffray wasn't changed in Friday's filing.

It's rare for a company to change lead underwriters so close to a road show, when executives travel with investment bankers to pitch the offering to institutional investors.

Morgan Stanley "said they would get Meeker to cover the company and they never did," the other person involved with the deal says. "In all that time, she never went out there."

According to the first person involved, Meeker made at least one apologetic phone call to NextCard executives after Morgan Stanley was booted from the deal, asking the company to reconsider, but NextCard refused. "It was too little, too late," the first person adds.

Another person familiar with the deal says Meeker did visit, but other problems arose between Morgan Stanley and NextCard. This person declined to elaborate on the problems.

The flap illustrates the tricky course analysts must negotiate between covering their sectors and serving their firms' investment banking clients.

"Mary Meeker is covering something like 60 companies all over the Internet sector," says the second person involved. "She can't do that. No one can cover 60 companies."

Morgan Stanley won the mandate to underwrite the then-$65 million IPO two months ago after beating out both

Goldman Sachs

and DLJ for the lead spot, says the first person involved. DLJ accepted a secondary role, while Goldman opted out.

Morgan Stanley has been heralded as one of the premier underwriters on Wall Street for Internet companies. The firm is ranked third this year in underwriting Internet IPOs, raising $390 million on five deals, according to

Securities Data

. With this performance Morgan Stanley has edged out traditional tech IPO heavyweights like Goldman, which ranks fifth this year, and

BancBoston Robertson Stephens

, which ranks fourth.

Bankers Trust

ranks first.

In making the underwriter switch, NextCard also increased the size of its offering to $75 million from $65 million. The price-per-share range is 14 to 16. The company begins its road show next week and the deal could come to market in about two weeks.