initial public offering market sputtering, there's concern that a giant issue, such as chipmaker
, could bring it to a halt.
As few as a dozen companies have gone public this year, with more than 50 withdrawing or postponing their issues, according to
, which provides information on
Securities and Exchange Commission
filings. In a market like this, a big issue with the backing of major investment banks still could be successful, but it also could fill what little demand there is for new issues.
Just witness the
offering almost a year ago, a $10.6 billion issue that went out about six weeks after the
Nasdaq Composite Index
came off its all-time high and served to hasten the demise of last year's already ailing IPO market.
"It's like a huge boulder dropping into a pool," says George Nichols, an analyst at
who tracks IPOs.
And there may soon be as many as two large issues for the stock market to absorb: Agere, a spinoff of telecom-equipment maker
25.5% share of
Time Warner Entertainment
AOL Time Warner
owns the rest of Time Warner Entertainment.)
Two weeks from now, Agere is slated to offer 500 million shares, priced anywhere from $12 to $14 (down from an earlier range of $16 to $19), bringing in as much as $7 billion. It's less certain the Time Warner stake will go to market, largely because the threat of an offering is a bargaining chip in AT&T's efforts to get AOL Time Warner to buy back the stock. But if it did, the issue would be big, considering that at least one analyst values it at $10 billion.
Compare those huge numbers to those of hotly anticipated
, a provider of Internet infrastructure that's the brainchild of
co-founder Marc Andreessen. A much smaller company, it's scheduled to debut Friday, offering 20 million shares for a total offering of $180 million.
To gauge the effect of a large IPO on a weak market, take a look at AT&T's spinoff of AT&T Wireless at the end of April 2000.
Back then, both the IPO market and the broader markets were starting to fall after a seemingly limitless rise.
"The IPO market began disintegrating in March," says Randall Roth, a research analyst at
Renaissance Capital's IPO Plus Fund
. "That's when you began to see selling. The tone of the selling was different. It was in volume and it took down every stock."
Out of the Gate
That's exactly when AT&T Wireless went to market. Unlike the triple-digit gains that previous IPOs had experienced, shares of the third-largest wireless carrier in the U.S. rose only 7% on their first trading day.
And though the IPO market didn't die right after that, the number of new issues that went out later in the year certainly ebbed, with many of them unable to raise as much money as they originally hoped they would.
"No single deal kills the IPO market," says Paul Grangaard, head of investment banking at
U.S. Bancorp Piper Jaffray
. But it was definitely difficult to do such a deal when investors were pulling back. "It sure didn't help to throw a huge supply of shares onto the market," says Nichols at Morningstar.com.
Roth contends that the IPO market was already in a decline before AT&T Wireless went to market, saying, "The IPO market kind of collapsed under the speculative excess of its own weight."
Though some observers thought the deal was overpriced and pushed too hard, AT&T Wireless was certainly not one of the speculative issues, considering it boasted a real business with real prospects. In fact, Grangaard of U.S. Bancorp Piper Jaffray says it's high-quality companies that will keep the IPO market going this year even if a large issue lands smack in the middle of it. "The market's appetite is dependent on the quality of company being offered," he says.
Investors will put their money in "bigger companies, with more proven models and real prospects for profitability," Grangaard adds, not "small-growth companies."
Large companies are also "appealing for several reasons -- if they're marquee names, if they're valued conservatively and if they have trading liquidity," says Joe Hammer, managing director of capital markets at investment bank
Adams Harkness & Hill
He points out that
went to market last month with a $2 billion issue and rose more than 30% on its first day (though it closed Wednesday trading at $17.94, down slightly from its IPO price of $18).
Also, large companies are often guaranteed to have big-name bankers. AT&T Wireless had an all-star cast, led by
, while Agere, as well as KPMG, lined up
as lead banker.
Even so, "the IPO market is going to continue to have issues," says Roth at Renaissance. "It will continue to struggle under the stigma of what happened to the people who bought companies like
And skittishness about the market and the economy will keep people wary. When a large issue makes its way to the market, "Other companies coming out with IPOs will wait for the market to absorb the shares and recover from the resulting hangover," Morningstar's Nichols says.