BERLIN -- U.S. investors, who long for the glory days of the Internet IPO boom a few years back, when anything with a dot-com name or an online connection ensured stratospheric valuations, should consider relocating to Europe.
In a textbook case of economics, European demand for Internet shares is bubbling, while the supply of shares that fit the bill remains limited. That dynamic has already helped ensure the offering of
, which debuts Wednesday on Frankfurt's tech-heavy
, will be a runaway success.
On Tuesday, Lycos Europe, the joint venture of media giant
and U.S. portal
, priced at the top of its bookbuilding range at 24 euros ($23.35) a share and was 33 times oversubscribed.
Already on the gray market, Lycos Europe when-issued shares are going for 33 euros -- a 37.5% premium to the IPO price. The massive demand suggests Lycos Europe's market capitalization could rival that of its U.S. parent, which has a market cap of $7 billion. When the bell rings on Wednesday, Lycos Europe will debut with a market capitalization in the neighborhood of $5.3 billion, calculated at 24 euros a share.
The sale of 28 million shares should bring in almost 800 million euros, including a 4.2 million-share overallotment option. The total comes to 13.9% of the company. Besides giving the company funds to continue its expansion in Europe, a successful debut likely will give the American parent company a boost from the European Internet feeding frenzy in the process, owing to the unique structuring of the joint venture.
Because Lycos fronted no cash for the enterprise, instead providing only technology and expertise, Lycos Europe's losses don't weigh on the company's balance sheet. But assuming the company at one point becomes profitable, Lycos will reap the lion's share of the reward. After the float, Lycos' stake will be 43%, Bertelsmann will control 27% and roughly 16% will be held by Lycos Europe Chief Executive Christoph Mohn.
Lycos' downside risks therefore may be minimal, but investors in Lycos Europe are likely to discover things won't be dead easy for the subsidiary. The operation includes a German-language search engine and a free Internet service provider, as well as the portal site, which means it has to compete with the likes of monsters
. Mohn admits he doesn't expect to be in the black for another few years.
Some big-named European Internet IPOs also have floundered of late. After debuting last week, Dutch Internet service provider
is almost 25% below its initial price of 43 euros a share and the U.K.'s much-hyped
now also has slumped below its IPO price after spiking at the outset. Such incidents doesn't seem to be scaring people away from Lycos, however, as there still continues to be plenty of European Internet stock-success stories out there, and Lycos has the strong U.S. brand to hopefully help investors see it as equity wheat instead of chaff.
Lycos Europe shares, but we'll have to wait and see about the long-term viability," says one Frankfurt-based fund manager, not wishing to be identified.
According to an equity research report by
William Blair & Co.
, regardless of Lycos Europe's fundamentals, the gold rush fever at the moment bodes well for Wednesday's IPO. On the whole, according to the report, "initial public offerings of international online companies have been extremely successful of late. This is true even of companies that have inferior prospects to Lycos Europe." The company holds Lycos shares and rates them a strong buy.
As for private investors, this year is likely to be characterized by continuing crazy demand for Internet and technology shares in Europe. In Germany, equity fever was sparked a few weeks ago during the highly successful IPO of
. Small investors flocked to the chipmaker despite warnings the cyclical nature of the company's business and the volatility of its shares could make those new to the stock market nauseous.
Many investors who didn't get any Infineon shares may have decided to bet on Lycos Europe instead. If that doesn't work out for them, they need only wait until April to make a mad dash for shares of ISP T-Online. Regardless of who buys and sells Lycos Europe shares after Wednesday, however, it appears Lycos has little to lose.