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Andover.Net to try open but unproven IPO process

Mirroring the inclusive philosophy of the "open-source" software movement, Andover.Net will use an open--though controversial--auction method for its initial public offering.

Mirroring the inclusive philosophy of the "open-source" software movement, Andover.Net will use an open--though controversial--auction method for its initial public offering.

Andover.Net--which aims to be the top Web destination for fans of the upstart Linux operating system and other open-source programming projects--will use W.R. Hambrecht's OpenIPO process.

In contrast with the traditional way a company goes public, OpenIPO uses an auction method that gives individuals the same power as the institutional investors who traditionally benefit most during successful IPOs.

Though the method includes more investors and could get around some of the problems that Linux seller Red Hat experienced when it went public, OpenIPO hasn't won everybody's heart.

"I'm not a fan of the OpenIPO process," said David Menlow, president of the IPO Financial Network firm, noting that the two companies that have used it so far, Salon.com and Ravenwood Wineries, haven't been roaring successes on the stock market.

Andover.Net bought its way into the Linux movement by acquiring Slashdot.org and Freshmeat, two popular sites for people seeking Linux news, discussion, and software. The company last week filed its intention to raise $49.6 million with an IPO.

Using the OpenIPO method is another twist on the sometimes awkward interactions between the largely volunteer open-source programming movement and the companies who hope to profit from it. The OpenIPO process, by including more than just big-name investors, lets Andover.Net avoid being perceived as a parasite that doesn't give anything back to the community.

Red Hat, the first Linux-related IPO, used a different method. That company offered the opportunity to participate in its IPO to about 5,000 developers--a process that partly backfired as not all who wanted to were able to get in on the offer.

Linux, a Unix-like operating system that its developers are targeting to supplant Microsoft Windows NT, is the flagship of the open-source movement, under which programmers freely share, modify, and distribute software. Open-source efforts have found a place not only with major computer companies but also with venture capitalists who see business opportunities there.

Larry Augustin, chief executive of computer maker VA Linux Systems, has said his company plans an IPO and is working to figure out the best way to include the open-source community.

Under the OpenIPO Dutch auction process, anyone may bid for shares. The people who bid highest win, but they don't necessarily pay as much as they bid. That's because the ultimate selling price comes from the lowest bidder whose offer is still high enough to make it into the winner's circle.

Of the two companies that have used OpenIPO so far, Salon.com's stock price is below what investors bought on opening day, and the Ravenswood wine company has very low trading volume, Menlow said. He attributes Salon's current low stock price of 5.88--considerably below the IPO price of 10.5--to the shortage of institutional sponsors and financial analysts covering the stock.

However, Andover.Net could be different, because it includes other financial sponsors, Advest and DLJdirect, a division of Donaldson Lufkin & Jenrette.

Another problem with the OpenIPO method is that, at least in the cases of popular stocks, the IPO price is set by demand instead of the financial merits of the business, Menlow said.

However, from the point of view of trying to include others in the stock offering, OpenIPO is good. "It puts the individual investor on the same level as the institutions," Menlow said. "I think that is a very good thing."