Wired, which publishes a Net culture magazine, books via its HardWired unit, several online venues, and produces a television show, pulled the plug on its planned initial public offering last night, blaming the last-minute decision on "market conditions." The company would not provide specifics, but according to sources, the market conditions were these: Wired simply failed to convince skeptical investors to buy a piece of the company.
The sources said that institutional investors got nervous about sinking money into a publishing company that valued its stock closer to what one would expect from an Internet software company. To soothe investor jitters, Wired marked down its initial asking price this week from the $12-to-$14 range to the bargain-basement $8-to-$10 range. This lower price was what the underwriters were peddling until late yesterday.
But without an infusion of capital from the IPO, the question of how the company will continue to operate remains unanswered.
The company will now review its private financing options, according to Rick Rice, general manager of Hill and Knowlton, Wired's public relations firm.
The cancellation marked the last in a series of false starts Wired has endured in its quest to take the growing but money-losing company public. Earlier this year, its CEO Louis Rossetto canceled a $410 million IPO after receiving a lukewarm reception from Wall Street. The company has lost $42.8 million in the first nine months of the year, compared to a $3.3 million loss for the same period last year.
In recent filings with the Securities and Exchange Commission (SEC), the company said it expected operating expenses to outstrip revenues at least through the end of 1997. Nearly half of the loss to date is attributed to $26.9 million in research, development, and expenses relating to stock options for the company and its online venues, including its new HotBot search engine. The media company would have used the IPO proceeds to pay for product development, international expansion, expenses, and working capital this year.
Wired issued a statement today saying its decision to withdraw the IPO was based solely on market conditions, particularly as they pertain to Internet-related companies.
The company added that speculation in the media about other reasons for the cancellation was unfounded. Published reports stated that Wired pulled the IPO because of an internal memo written by Rossetto and issued to 334 Wired employees that derided the company's critics and touted its successes. The memo ended up circulating among 10,000 subscribers of the online service The WELL and elsewhere on the Net. The leak may have prompted the SEC to question whether the company had observed the pre-IPO "quiet period."
The quiet period rules are intended to prevent companies from hyping their stock by limiting written and verbal statements by the officers of companies. If they are considered to be "conditioning" the market, the SEC may informally intervene to halt or delay an offering, said Howell Jackson, a law professor at Harvard University's Law School.
"The interesting debate is whether electronic commerce can be considered writings in the same way that the SEC defines written and spoken communications," he said. Though Wired maintains the memo was never intended for public consumption, intent holds less weight than effect with the commission, he noted.
"Intent usually isn't what is important here," said Jackson. He said the SEC usually acts based on what effect such communications could have in swaying potential investors.