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DLJDirect posts modest gains in market debut

Shares of DLJDirect's initial public offering opened at 26 5/8 Wednesday before settling at 24 1/2 in morning trading. DLJDirect (NYSE: DIR) priced its offering at $20.

DLJDirect raised $320 million before fees for the 16 million tracking share issue.

Shares priced at the top of its revised range between $18 a share and $20 a share. DLJ initially planned to raise $13 to $15 a share for the IPO. The offering represents a 15 percent interest in Donaldson Lufkin & Jenrette's online brokerage, the seventh largest on the Web.

The shares sold are meant to track the performance of DLJ's online business. To that end, DLJ and DLJDirect will report results separately and will have separate revenue and cash flow. Shareholders of DLJDirect shares are shareholders of DLJ.

The funds raised will be used to pay for its $65 million advertising budget for this year and repay debt to an affiliate, according to a filing with the Securities and Exchange Commission.

The offering is a matter of cannibalism for DLJ, as its online business will likely compete with its traditional brokerage business. DLJ isn't the first to risk its core business with an online unit. Morgan Stanley Dean Witter has its Discover brokerage, as do other traditional brokers.

DLJDirect's underwriters were led by DLJ, and assisted by DLJDirect, BT Alex. Brown, Goldman Sachs, Merrill Lynch, Morgan Stanley and Salomon Smith Barney.

Revenue last year rose 75.4 percent to $117.9 million from $67.2 million in 1997. Sales were $35.4 million in the fourth quarter of 1998. The average volume of trades executed climbed 86.9 percent to 11,400 per day from 6,100 in 1997. DLJDirect processed 14,200 trades in the fourth quarter.

Like many online brokers, DLJDirect's services have faltered. On February 1 and April 13 the broker's system crashed, knocking out trading for hours on each day. The February outage lasted from 7:30 a.m. EDT to 11 a.m. and a programming error was cited for the crash. A delay in output from an affiliate's system brought down the system again in April, affecting 35 percent of orders that were entered from the previous day.

In related news, E*Trade Group Inc. (Nasdaq: EGRP) proposed to shareholders to double the amount of outstanding shares it may hold to 600 million shares. After the online brokerage's two-for-one split, E*Trade had about 233 million shares outstanding, close to its 300-million share ceiling. The proposed increase is to be used for future acquisitions and other purposes.