Golden goose takeoff - TheStreet

For weeks, the impending public issue by Verint Systems (Nasdaq:VRNT) had raised eyebrows among Israel's investment community.

Given the mood on the Street, with Nasdaq stuck around 2,000 points and the icy cold IPOs market, the Verint issue was starting with a whimper, if not a sob.

How, the experts wondered, would Comverse Technology (Nasdaq:CMVT) float its subsidiary - with 2001 sales of $131 million, an operating loss of $2.5 million and zero profit over six years ¿ at a value of almost $400 million?

Moreover, Israel already has a company decidedly similar to Verint on Wall Street, at half that price. Namely, Nice Systems (Nasdaq:NICE), which also makes digital recording systems. Just days ago Nice announced first-quarter sales of $36 million, extrapolating to $144 million a year, and a $1.2 million loss. Its market value is around $183 million.

Verint's chances did not look good.

But Comverse chairman Kobi Alexander did it again. Alexander, who began his career as an investment banker before founding Comverse, persuaded Lehman Brothers to lead the issue, against all odds. Lehman and the co-managing underwriters, Salomon Smith Barney, Robertson Stephens, UBS Warburg and U.S. Bancorp Piper Jaffray, sold 4.5 million shares at $16 a pop, valuing the company at $374 million.

Verint thus became the first Israeli company to issue on the Street this year. Its effort brought it $72 million, part of which will go to repay money lent by Comverse. If the underwriters decide to exercise their green-shoe rights, Verint will start its public career with $82 million in hand.

They probably won't, though, given the share's behavior on its first day. The golden goose behaved more like a dead duck, sinking throughout the session to reach $14.5. ont good for Verint: Wall Street stats of the last year indicate that companies with a 10% loss on the first day never regain their IPO price.

Also, turnover exceeded 6 million shares ¿ meaning, 3 million changed hands. Compare that with the 4.5 million sold the day before. A trading volume of that magnitude means that many of the buyers on IPO day, Wednesday, jumped ship on Thursday, even though they lost money.

Why would an institutional investor or underwriter sell the lot within 24 hours, at a loss no less? Apparently, because it feels the company is expensive, in absolute terms or relative to peer companies on the market.

If that is what they feel, why did they buy in the first place? Or, why did Ron Lubash of Lehman and the rest invest their own money to carry out the issue at that price?

They believe the answer lies not with Verint but with Kobi Alexander. Comverse has seen its revenues and profits erode, but it's still a big company with $1.8 billion in the kitty. Comverse has plenty of financial bustle ahead of it: acquisitions, mergers of its units with other companies, issues of shares and bonds ¿ in short, plenty of opportunities for commissions by a loyal investment banker.