Peabody to heat up IPOs

May 19, 2001: 7:00 a.m. ET

Peabody to continue string of strong IPOs, Smith & Wollensky IPO on tap
By Staff Writer Luisa Beltran

NEW YORK (CNNfn) - The IPO market hit a home run last week, with strong showings from Tellium Inc. and Global Power Equipment Group Inc. adding some much needed oomph to new issues, and now another energy firm is set to glow.

IPOs posted solid gains last week, scoring one of the best time periods this year. The six offerings raised nearly $2 billion with four recording sizable premiums, according to data from CommScan, a New York-based investment banking research firm.

Satyam Computer Services Ltd. (SAY: Research, Estimates) , an information technology provider, gained nearly 22 percent while Tellium Inc. (TELM: Research, Estimates), a maker of optical switches, shot up nearly 40 percent. Global Power Equipment Group Inc., a gas turbine maker, soared 57 percent Friday, while Instinet Group Inc. (INET: Research, Estimates) followed with a 22 percent surge.

A stabilizing broader market, which has rebounded from the lows it hit in April, is helping build IPO strength. The general market surged last week after the Federal Reserve cut interest rates and left open the possibility of a further reduction.

For the week, the Dow Jones industrial average gained 4.4 percent, the Nasdaq composite index rose 4.3 percent, and the S&P 500 advanced 3.7 percent. On Friday, the Nasdaq, a barometer for new issues, gained 5.20 points to 2,198.88 while the Dow added 53.16 points to 11,301.74 – its highest level since Sept. 6, 2000.

Energy again
Only two IPOs are on tap this week, according to data from MCM Corporate Watch. But all eyes will go back to the energy sector, which is emerging as a leader for new issues.

The sector has produced some of the best offerings this year, such as Aquila Inc. (ILA: Research, Estimates) , a unit of Utilicorp United, is now trading nearly 40 percent above its $24 IPO price.

The strong performance of Global Power (GEG: Research, Estimates) last Friday also bodes well for Peabody.

"Energy is in and energy is hot," said John Fitzgibbon, editor of Gaskins IPO Desktop. "Peabody is a big profitable company."

The current energy crisis also adds some vigor to the Peabody IPO. St. Louis-based Peabody Energy, the largest private sector coal company, sold 181.6 million tons of coal for the year ended Mar. 31, 2001, a 16 percent U.S. market share.

Peabody sells coal to more than 290 electric generating and industrial plants which fuel 9 percent of the United States' electrical supply and 2.5 percent of the world's electricity.

The coal company plans to offer 15 million shares at $25-to-$27 each, up from the $22-to-$24 range, via lead underwriters Lehman Brothers. Peabody had planned on selling 20 million shares at $18 to $22 each.

After the IPO, Lehman Brothers Merchant Banking and its affiliates will own 59 percent of common stock. Peabody had a profit of $107 million on $342 million in revenue on for the year ended March 31.

Because of Global Power's huge showing last week, analysts have high hopes for Peabody. "Peabody will do well," said Corey Ostman, co-CEO of Alert-IPO.com.

Some believe the Peabody IPO could jump by as much as 25 percent on the New York Stock Exchange. "All stars are in alignment for Peabody," said analyst Steve Tuen, of IPO Value Monitor.

Peabody is expected to price Monday under "BTU" and trade Tuesday.

A steak by any other name...
Smith & Wollensky Restaurant Group Inc. tightened the terms of its planned IPO last week and now plans to sell 5.03 million shares at $8-to-$10 each via lead underwriter CE Unterberg Towbin. The restaurant firm had expected to sell 4.95 million shares at $7.50-to-$10.50 each.

Miami-based Smith & Wollensky owns and operates high-end, high-volume restaurants in the United States. The firm operates 14 restaurants, nine of which it owns and five it manages.

Smith & Wollensky is famous for its large steaks but not for its profitability. The firm had overall net losses of $4.9 million in fiscal 2000 but turned a profit of $7.9 million from owned and managed restaurants.

"Restaurant chains don't make money and they aren't going to make [money] after they go public," said Fitzgibbon of Gaskins IPO Desktop.

The IPO will benefit from good timing, said David Menlow, president of IPOfinancial.com. "Were it to come out in a market with a greater quantity of deals it might get lost in the shuffle," he said.

If the broad market surges, Smith & Wollensky may eke out a small premium. However, most analysts believe the deal will trade flat.

Smith & Wollensky is expected to price Tuesday and trade Wednesday under the Nasdaq symbol "SWRG."