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Agere IPO earns pennies from Wall Street

Shares of Agere, Lucent Technologies' chip spinoff, ends its first day of trading just a few cents over its initial offering price.

Shares of Agere Systems, Lucent Technologies' chip spinoff, finished the day slightly higher than its $6 offering price on heavy volume.

Agere closed at $6.02 as more than 130 million shares exchanged hands.

The IPO of Agere ended a exhaustive effort by Lucent to complete the deal in the face of a gloomy stock market and an uncertain outlook for the optical industry. Despite the good first day, analysts following the offering said Agere faces a tough crowd on Wall Street.

"They really couldn't have picked a worse time," said Paul Bard, an analyst with Renaissance Capital's IPO Plus Fund. Agere will trade under the symbol "AGR."

Despite the climate, Lucent still needed the deal to go through. The company has had a terrible year, which caused its debt load to balloon, and the spinoff would help the company clean up its balance sheet.

Lucent also did not get as much bang for its buck as it initially expected. The company and lead underwriter Morgan Stanley have been under constant pressure to lower the initial public offering price that many prospective buyers viewed as too expensive.

Lucent originally announced Feb. 7 that it would price the IPO between $15 and $20 a share. That range was narrowed to $16 and $19 on Feb. 20, then cut to between $12 and $14 on Feb. 26.

The range was finally slashed to between $6 and $7 a share on March 22.

A shaky stock market has a lot to do with Agere's pricing woes. Technology stocks have been gutted, as the Nasdaq has lost 20 percent this year--and is down 60 percent from its all-time high.

Shares of optical-component makers in Agere's camp have not fared well either. Component giant JDS Uniphase closed at $23.31 Tuesday--close to its 52-week low of $21.50.

The precipitous nature of the markets compelled smaller optical component companies to pull their IPOs and wait for calmer times. Two weeks ago, three optical-component companies--Chorum Technologies, WaveSplitter Technologies and Optical Micro Machine--pulled their offerings.

Gloomier forecasts comprise another major reason for the toxic sentiment toward tech stocks. The optical industry treated investors to a host of earnings warnings from equipment makers, such as Cisco Systems and Nortel Networks, which buy components from the likes of Agere.

"Visibility has really dropped off in terms of orders" from Agere's customers, said Bard. The industry is beginning to think that "the slowdown is something that could last longer than just a few quarters."

According to a Securities and Exchange Commission filing dated Feb. 26, Lucent had about $8.1 billion in outstanding debt as of Dec. 31, 2000. The deal allows Lucent to transfer $2.5 billion in debt from its books to Agere's, in addition to the $3.6 billion the company raised from the IPO.

This is actually much less debt relief than the company had secured earlier. When the deal was valued between $12 and $14 a share, Morgan Stanley agreed to assume about $2.5 billion Lucent debt in exchange for 200 million shares.

Under the present terms, Morgan Stanley received 90 million shares, but no extra debt in exchange, although the investment bank already holds about $1.6 billion in Lucent debt.

The new company will face tough challenges as a separate entity, but there are some positives. "This is a part of Lucent's business that is more attractive," Bard said.

Bard had said that selling 600 million shares in the current climate would be a challenge but also noted that Agere is an established company with a proven track record, and that could draw a following from large institutional funds.

He also thinks that the deal could give a boost to investors' morale when there is little to cheer about. "Had this deal not got done, it would have set the IPO market back," he said.