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IPOs flooding the market
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November 17, 1997: 12:55 p.m. ET
But issuers find a waning appetite for equities and a 'bit of indigestion'
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NEW YORK (CNNfn) - Despite a U.S. stock market dominated by volatility, a deluge of mutual public offerings continues to flood Wall Street.
The pickup in activity began in October and heightened last week, when the IPO market posted its busiest weekly volume this year, only to be eclipsed with this week's calendar as the IPO market comes to a rolling boil.
More than 40 new offerings, raising about $13 billion, are expected to begin trading. Just over $9.5 billion of that amount will come from Australian phone company Telstra, which priced over the weekend and begins trading Monday at $47.45 a share on the New York Stock Exchange.
Yet for the first time in several years, it appears the market may not have the appetite for all the new offerings. As one equity underwriter observed, there's a bit of indigestion in the markets.
The latest data on mutual fund flows tracked by Liquidity Trim Tabs indicate an unhealthy imbalance in the amount of cash flowing into the market and the number of new issues, including IPOs, secondary offerings, American Depository Receipts and units.
Stock market liquidity fell to minus $5.3 billion last week, suggesting the amount of new offerings into the market was met with absolutely no cash either from money flows or stock buybacks to absorb the deals. Liquidity is expected to deteriorate with this week's IPO calendar.
Benckiser's $636 million offering is the second-largest deal and is seeing demand. The Dutch household products company, best known for its Calgon dishwashing product, competes on a global scale with U.S.-based Procter & Gamble and the Netherlands-based Unilever.
Following the trend of niche-market real estate investment trusts going public, Entertainment Properties Trust is slated to raise $276 million, priced at $20 a share. It's the first REIT focused exclusively on movie theater properties. The company was formed to buy 12 theater properties owned by AMC Entertainment, the nation's largest movie-theater operator. It also has an option to buy five additional properties from other theater chains.
Former AT&T President Alex Mandl is set to take his wireless start-up Teligent public this week with a $112 million IPO priced at $22 a share. Teligent also has the backing of Nippon Telegraph and Telephone (NTT), which is making a $100 million investment in the company.
Some analyst believe Teligent, along with other wireless service providers such as Winstar, will significantly threaten the incumbent local phone providers and GTE.
One advantage is that wireless technology requires lower capital costs than either fiber or copper-based networks, thus enabling Teligent to broaden its customer base quicker and at a lower cost.
Currently, Teligent holds wireless licenses covering half the nation's business phone lines and plans to offer integrated services including local and long-distance, data, Internet and video conferencing in at least 10 markets by the end of next year.
Despite its grand plans, Teligent has a limited history, having only started operations in March of last year. Since its focus has been on acquiring licenses and forging agreements, the company has generated operating losses and negative cash flow.
One intriguing prospect, however, is its potential as an attractive takeover candidate for long-distance carriers trying to crack the local phone market in a cost-efficient way. Nationsbanc Montgomery Securities telecom analyst, William Vogel suggests that Winstar would make a great fit for AT&T. Recently, Worldcom purchased competitive local exchange carrier Brooks Fiber.
Some smaller IPOs that are seeing good demand this week:
Rayovac, the nation's third-largest battery maker, is expected to price between $13 and $15 per share, raising $93.8 million. After posting a profit of $14.3 million last year on sales of $423 million, the company's performance for the first half of this year suggests revenues could grow by 50 percent.
RealNetworks, which provides Internet and Intranet software products and services, is slated to raise $34.5 million with an IPO between $9 and $11 per share.
In the textile industry, Dan River, a leading maker and marketer of home fashions such as comforters and bed sheets, is set to raise $100 million between $14 and $16 a share. Dan River posted $379 million in sales last year.
While these deals appear to be generating demand, analysts don't expect returns to be stellar. Prior to mid-October, the average IPO appreciated 41.5 percent from offering to the present. However, IPOs since the market sell-off in mid-October have posted a modest 14 percent return from first day to present. The average performance for '97 IPOs is now up a meager 11 percent. 
--by Bambi Francisco for CNNfn Interactive
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