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All IPO eyes on big cheese
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April 14, 2001: 7:00 a.m. ET
Kraft Foods issue to help revive IPOs; Reliant and Instinet also on top
By Staff Writer Luisa Beltran
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NEW YORK (CNNfn) - Fresh on the heel of a slow first quarter and with no IPOs in sight this week, analysts surprisingly have high hopes for the rest of second quarter.
A slight rebound in the broad market is fueling these expectations. Last Thursday, the Nasdaq Composite index capped off its best week of the year to date, gaining 241 points or 14 percent. The Nasdaq is still down more than 20 percent from the start of the year but closed up 62.46, or more than 3 percent, to 1,961.41 Thursday.
The Dow Jones industrial average also turned in a strong performance, gaining 335 points, or 3.4 percent for the week. But the Dow is still trailing for the year, down 6.1 percent. On Thursday, the Dow surged 113.47, or more than 1 percent, to close at 10,126.94.
Two IPOs also began trading last week to somewhat solid gains, adding to signs of growing stability. Shamrock Logistics LP (UDL: Research, Estimates), a petroleum pipeline operator, gained 14 percent in its debut, while Dr. Reddy's Laboratories Ltd. edged up into positive territory.
"The uncertainty and market volatility seem to be disappearing," said David Menlow, president of IPOfinancial.com. "Things are getting better and fundamental strength is coming back into marketplace."
The second quarter's IPO market is still significantly off last year's numbers. At this time in 2000, 22 companies had gone public, raising $5.6 billion, compared with the two firms this quarter that have raised a meager $201 million.
So far this year, 35 companies have filed with the Securities and Exchange Commission to go public, a far cry from last year when 345 firms were looking to launch IPOs. At present 71 companies are in the IPO pipeline looking to launch offerings, according to data from CommScan, a New York investment banking research firm.
No deals are expected this week, and only Aquila Inc., a unit of Utilicorp., is on tap for the week of April 16, analysts said. Kansas City, Mo.-based Aquila plans to offer 16.5 million shares at $21-to-$23 each via lead underwriters Lehman Brothers and Merrill Lynch.
Still, many have high hopes for the rest of second quarter. "We are getting past a lot of negative news," said Steve Harmon, CEO of High Velocity Ventures, a San Francisco-based investment research firm. "This year will be a year of sideways motion and rebuilding."
Many investors don't have the resources to invest now and will be looking to come back gradually, he said.
"A lot of investors don't have the money to get back in the game," Harmon said. "We see third and fourth quarters as better than the second but not a complete rebound."
The big cheese
Analysts are looking for a few strong names to lead the IPO charge in second quarter. Most are expecting a strong performance from Kraft Foods Inc., which filed in March to raise $5 billion.
Northfield, Ill.-based Kraft is expected in late June, underwriters on the deal said. The Philip Morris unit, which makes everything from Oscar Mayer hot dogs to JELL-O, has yet to specify the number of shares it will offer or their price range, but the deal is co-led by Credit Suisse First Boston and Salomon Smith Barney.
 "This is going to be the institutional sweetheart," IPOfinancial.com's Menlow said.
Kraft Foods is immensely profitable, with $26.5 billion in revenue on $2 billion in earnings in 2000. The food unit also a 99.6 percent market penetration.
Pending tobacco litigation also will likely not weigh on the IPO, but go instead against parent firm Philip Morris (MO: Research, Estimates). However, the unit performs in a very mature sector where there is little chance for huge growth, said analyst George Nichols, of Morningstar.com.
"But people focus more on growing profits," Nichols said. "This should do well."
Kraft plans to trade on the New York Stock Exchange, under the symbol "KFT."
The Instinet IPO
Unlike Kraft, expectations are mixed for the IPO from Instinet Group LLC, the electronic brokerage unit of Reuters Group PLC.
In April, New York-based Instinet filed to sell 29.5 million shares at $11-to-$14 each via lead underwriters Credit Suisse First Boston and Deutsche Banc Alex. Brown.
The Instinet IPO could raise as much as $413 million, down from the $450 million the company originally filed to raise on Feb. 8.
New York-based Instinet operates one of largest electronic communication networks (ECN) where buyers and sellers can trade stock anonymously. Customers, such as institutional investors, can access securities markets globally, including exchanges in Zurich and Hong Kong as well as the Nasdaq. Instinet competes against other ECNs such as Archipelago and The Island ECN.
London-based Reuters was planning to offer Instinet a year ago, but postponed the plan, hoping for better market conditions. Many analysts are now questioning whether the offering is coming to market too late.
Online trading volumes have declined this year and combined with the current economic slowdown many brokers are now looking to contain costs. Charles Schwab & Co. (SCH: Research, Estimates), the No.1 online broker in the U.S., announced earlier this month that it is cutting 2,750 to 3,400 jobs, or 11 percent to 13 percent of its total staff, to reduce operating costs.
Rival TD Waterhouse (TWE: up $0.77 to $9.68, Research, Estimates) has said it would cut employees through attrition. Ameritrade Holding Corp. (AMTD: Research, Estimates) also said last week that it was cutting its advertising budget and as much as 14 percent of its work force to cope with flagging stock markets.
"The Instinet IPO has the window dressing of a 2000 IPO," said High Velocity's Harmon. "People had more respect for this last year."
Reuters acquired the 33-year old firm in 1987 and will continue to hold a sizeable chunk, 87.5 percent, after the IPO.
Unlike the dot.com rage of last year, which routinely featured speculative startups with little or nor prospects, Instinet is a mature company with 1200 customers in 2000. The unit is also profitable with $1.4 billion revenue on $144.7 million income in fiscal 2000.
"The one thing about it: You strip away all the technology and buzz words, and look at their income and revenues," Harmon said. "You have a real business here."
Instinet has yet to appear on the IPO calendar but is expected late May, underwriters on the deal said. The company plans to trade under the Nasdaq symbol "INET."
An energy surge
Hopes are high for the offering from Reliant Resources Inc., a unit of Reliant Energy.
The IPO is one of the few deals to see its price range increase several times. In October, Houston-based Reliant filed with the SEC to raise $1.3 billion. In December, the company set the terms of its deal at 52 million shares with a price range of $14-to-$19 each. A week later, the company raised the range to $15.50-to-$17.50 a share.
In March, Reliant then boosted its price range to a flat $25 a share. On April 11, Reliant Resources settled on its current terms, and now plans to sell 52 million shares at $26-to-$28 each via lead underwriters Goldman Sachs and Credit Suisse First Boston.
At the high end, Reliant can now raise as much as $1.5 billion, more than its initially filing amount.
Reliant Resources buys and develops electric power generation firms, or utilities, that are not subject to traditional cost-based regulation, the company said in an SEC filing. Reliant plans to become a retailer of electric services in deregulated U.S. markets and will start with Texas when that market open to competition in January 2002.
Parent firm Reliant Energy Inc. will hold an 80 percent stake after the IPO. The parent firm plans to complete a spinoff of the unit within one year and will distribute the remaining shares it owns to stockholders.
The California energy crisis will only help this utility that sells energy at market prices, analysts said. Reliant is also very profitable with $20 billion in pro forma revenue on $446 million operating income last year.
"Their revenues are huge," said Matt Zio, cofounder of IPOguys.com. "The energy crisis is taking over the U.S. and moving East which will help them."
In the short term, the IPO will produce a small premium, but it should surge in the long term, said analyst Mike Falbo, of IPOpros.com.
Reliant Resources is expected to price the week of April 30, underwriters on the deal said. The company will trade under the New York Stock Exchange symbol "RRI."
Verizon IPO on tap?
The year's biggest new issue will come from the strong but dull insurance sector. Prudential Financial Inc., the No. 2 U.S. life insurer, filed last week to raise $3.9 billion, which will make it the largest U.S.-based IPO since AT&T Wireless's $10.6 billion offering last year.
Newark, N.J.-based Prudential Financial plans to sell 89 million shares via lead underwriters Goldman Sachs and Prudential Securities Inc. Expectations are high for the deal but Prudential is not slated to launch the IPO until fourth quarter of this year.
The only other noteworthy deal this year comes from Verizon Wireless, the largest U.S. wireless-phone service provider. Verizon Wireless, a unit of Verizon Communications (VZ: Research, Estimates), is the biggest U.S. cellular phone service provider -- eclipsing AT&T Wireless (AWE: Research, Estimates) and Sprint PCS (PCS: Research, Estimates).
In August, Verizon Wireless filed with the Securities and Exchange Commission for a $5 billion IPO. The offering, co-led by Goldman Sachs & Co. and Merrill Lynch & Co., was expected in September. However, in October, Verizon Wireless delayed the sale due to market volatility.
"They've been sitting in registration for a long time," said Falbo, of IPOpros.com. "And we haven't even seen the terms yet."
The IPO market has yet to rebound since last year's gutting on Wall Street and analysts are now questioning whether Verizon will ever go public.
Verizon still hopes to go public before the end of this year but has no timeline to launch the offering, a company spokesman told CNNfn.com.
"They couldn't have picked a worse time to go public," said Morningstar.com's Nichols. 
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