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THE DAY AHEAD: Companies hope pricing is right as IPO window opens

Is the pricing right for initial public offerings? Tech companies on the IPO bubble are adjusting price ranges to attract investors.

Simply put, if the company isn't a high-flying Net infrastructure company it has to come down on its IPO pricing.



Is the pricing right for IPOs?



The evidence is stacking up:

  • Sequoia Software (Nasdaq: SQSW), an XML software provider, went public May 12 with 4.2 million shares priced at $8 each. The IPO priced at the low end of its $8 to $10 range, which was lowered from $11 to $13 last month. Nevertheless, Sequoia had a decent first day gain in a down market.

  • Coolsavings.com (Nasdaq: CSAV), an online provider of marketing incentives, lowered the range in its offering of 4.2 million shares to $8-10, down from $11-13. The company priced its offering at $7 Friday, but still didn't find any takers. Shares are about $6 now. Coolsavings competes with FreeShop (Nasdaq: FSHP) and Promotions.com (Nasdaq: PRMO) among others.

  • Centillium Communications (Proposed ticker: CTLM), which makes broadband chips, lowered its price range to $18 to $20, down from an original range of $22 to $24. The company is offering 4 million shares this week.

  • iBeam Broadcasting, (Nasdaq: IBEM) a provider of streaming media broadcast delivery services, priced 11 million shares May 18 at $10, the mid-point of its revised $9 to $11 range. iBeam originally filed to sell 10 million shares between $13 and $15. IBeam is trading at about $12.

    And that's just the beginning. Look for lower price ranges across the board as companies adjust their market valuations. The lower IPO prices may not help aftermarket performance, but it does allow some companies to go public.

    Richard Faint, co-founder and CEO of Sequoia, said there's no shame in lowering your IPO price range. The company decided to lower its price range because the time was right to go public. "We were pricing to the valuations on the market," said Faint, who referred to WebMethods (Nasdaq: WEBM) as a valuation benchmark.

    Faint said the company's primary product, the XML Portal Server, was at an "inflection point where it needed more resources to grow."

    The Sequoia chief maintained that the decision to go public had little to do with cash even though the company had $10 million in funds at the end of 1999. "Completing the IPO is helpful to us because it gives you more credibility," said Faint.

    Sequoia and other tech companies are juggling price ranges because their business models may be not be the "in thing" on Wall Street. There are still a few sure IPO bets.

    Enter the infrastructure players.

    Sonus Networks (Proposed ticker: SONS) will offer 5 million shares with an expected range of $19 to $21. The company's IPO should fare well considering it plays in the telecommunications equipment space. The company is similar to Sycamore Networks (Nasdaq: SCMR) and Clarent (Nasdaq: CLRN), according to Renaissance Capital.

    StorageNetworks, (Proposed ticker: STOR), which offers data storage services, is expected to price 9 million shares between $17 and $19 this week. The company, which competes with Usinternetworking (Nasdaq: USIX) and Interliant (Nasdaq: INIT), may not juggle its IPO price because of the success of its competition.

    ONI Systems (Proposed ticker: ONIS), an optical telecom equipment company, plans to offer 8 million shares priced between $14 and $16 each. ONI, which bumped its price range to $21 to $23, is similar to Sycamore and Ciena (Nasdaq: CIEN).

    Those infrastructure companies are the haves in the IPO world. The have-nots have to hope their price ranges are right.


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