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Go-go IPO market mired
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March 17, 2001: 7:00 a.m. ET
Lucent expected to launch $6.5 billion Agere IPO in troubled market
By Staff Writer Luisa Beltran
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NEW YORK (CNNfn) - A stumbling Nasdaq has put the breaks on the go-go IPO market and analysts are now questioning whether any new issues will open at all this week.
Warnings from several tech companies, such as Compaq Computer (CPQ: Research, Estimates) and Computer Sciences Corp. (CSC: Research, Estimates), helped spark a selloff in the broad market Friday. The Nasdaq composite, the barometer for the IPO market, fell to its lowest level since November 1998, tumbling 50.10 points, or more than 2 percent, to 1,890.61.
Last week, only one of the four expected IPOs managed to go public. Surebeam Corp. (SURE: Research, Estimates), a unit of Titan Corp., did open for trade Friday but to dismal results, quickly falling below its offer price. Nextel International, last week's most anticipated deal, also pulled its IPO due to poor market conditions.
Three new issues are now expected to begin trading this week, expected to raise a hefty $6.7 billion, most of which is coming from the huge offering by Agere Systems Inc. Only 18 companies have gone public in first quarter 2001, a far cry from last year when 113 firms had opened by this time, according to data from CommScan, a New York-based investment banking research firm.
 "Right now capital preservation is first and foremost," said analyst Steve Tuen, of IPO Value Monitor. "That leaves IPOs on the back burner. Investors have been really resistant to any new offerings."
The dismal performance of the Loudcloud IPO has also cast a pall on tech issues. Loudcloud Inc. (LDCL: Research, Estimates), an Internet services company, gained 3 percent in its March 9 debut but has failed to maintain its tiny premium, falling below its $6 offer price Friday.
Wall Street is now favoring companies that can show a path to profitability and good fundamentals, said Tom Frangione, a portfolio manager at mutual fund firm Metamarkets.com, who manages an IPO fund.
"The IPO market isn't favoring tech companies right now but other companies -- like consumer staples, biotechnology and energy type plays -- are doing well," he said.
Frangione pointed to the IPO from AFC Enterprise Inc., which operates Popeye's Chicken and Cinnabon franchises, that rose 20 percent March 2. Atlanta-based AFC (AFCE: Research, Estimates) has since traded above its $17offer price, falling 6 cents to $18.81 Friday. The offering from Peet's Coffee (PEET: Research, Estimates) has also surprised analysts, managing to trade around its $8 IPO price.
Most likely to succeed
Analysts are betting that the IPO from Agere Systems, the microelectronics unit of Lucent Technologies, will begin trading this week.
Lucent (LU: Research, Estimates) is under pressure to pay off a heavy debt load which will compel it to launch the Agere IPO despite the poor market, analysts said. Lucent is also looking to sell its Optical Fiber Solutions business, which could fetch up to $10 billion.
Agere Systems plans to offer 500 million shares at $12-to-$14 each via lead underwriter Morgan Stanley Dean Witter.
Agere Systems, which initially filed its IPO in December, is selling 300 million shares while Morgan Stanley plans to offer 200 million. The IPO is expected to open early this week, underwriters on the deal said, and will trade under the New York Stock Exchange symbol "AGR.A."
Lucent will get about 60 percent of the proceeds from the $6.5 billion IPO, while Morgan Stanley will receive a profit from the 200 million shares it holds, analysts said.
"Lucent is trading at around $10 so how in the world are they going to raise capital?" said Matt Zito, co-founder of IPOguys.com. Lucent shares were down $1.05 to $9.99 at the close of trading Friday.
Allentown, Pa.-based Agere designs and makes optoelectronic components for communications networks and integrated circuits for computer equipment. Agere is a leader in the sales of communications semiconductors.
"Semiconductors are not what the market wants to see right now," said Corey Ostman, co-CEO of AlertIPO.com.
Agere has already trimmed its planned offering and will likely revise the deal again, said John Fitzgibbon, editor of WFNusa.com.
"Agere is a really solid company with a really big name," Fitzgibbon said. "It will be priced at a discount to give it a modest opening day premium."
The other IPOs
Analysts are mixed whether any of the other IPOs will actually open. Verisity Ltd., a provider of technology to verify designs of chips and electronic systems, is also on tap to launch this week.
Mountain View, Calif.-based Verisity provides technology that helps detect flaws in semiconductors. Principal customers include Cisco Systems (CSCO: Research, Estimates), Hewlett Packard (HWP: Research, Estimates), Alcatel and Texas Instruments (TXN: Research, Estimates).
"Verisity is going to have a tough time because of the space they are in," said AlertIPO.com's Ostman. "All of their customers are having a difficult time, too."
Verisity had $4.4 million in losses on $21.5 million in revenue in fiscal 2000. The tech company plans to offer 3.335 million shares at $8 to $10 each via lead underwriter Robertson Stephens.
Verisity plans to price its deal Tuesday and trade Wednesday under the Nasdaq symbol "VRST."
QK Healthcare, a wholesale distributor of selected healthcare products, is also expected to go public. QK Healthcare had been on calendar for last week but delayed apparently due to market conditions.
The delay now makes the QK Healthcare IPO "damaged goods," said WFNusa.com's Fitzgibbon.
Ronkonkoma, N.Y.-based QK plans to sell 11 million shares at $14-to-$16 each, down from its plan to offer 15 million shares, via lead underwriter Lehman Brothers.
QK plans to trade on the New York Stock Exchange symbol "KRX." 
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