Agere said Thursday in its latest regulatory filings that it will lower the terms of its IPO to 600 million shares priced between $6 and $7 a share. At the midpoint of that price range, Agere will raise $3.9 billion, sharply lower than the $6.5 billion it was hoping to raise.
The news raises the stakes for Lucent, which needs to raise cash after a year of costly mistakes that whacked the stuffing out of the telecommunications equipment maker's stock and left it saddled with debt.
Lead underwriter Morgan Stanley had priced the offering of 500 million shares in a range of $12 to $14 each on Feb. 26, down from the previous range of $16 to $19 a share.
Many Wall Street analysts believed the shares would go even lower. The IPO "will be priced down--there's no doubt about that," said Steven Levy, an analyst at Lehman Brothers, who thought the parties involved would push the price down to $8 a share.
Investors see debt as the main suspect weighing down the offering. 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.
Under the old terms of the deal, Morgan Stanley would assume $2.5 billion of that debt, and Agere would also take on $2.5 billion of Lucent debt. Morgan Stanley also would have received 200 million shares to sell in return.
Now the plans to exchange debt for shares of Agere have been scrapped, but Agere still assumes the $2.5 billion of Lucent debt.
The sticking point that may have forced Agere's lead bankers to rethink the offering price is that investors do not relish the idea of owning shares of a debt-laden company, especially when short-term prospects for the optical-components business look bleak.
JDS Uniphase, a large optical-component maker, told investors through a March 6 SEC filing that it expects earnings and revenue for the March quarter to fall below previous company expectations.
The stock market has also not looked as gloomy for a while. The tech-heavy Nasdaq has fallen more than 60 percent from its high a year ago. The conditions for tech stocks were perceived so treacherous that three optical-component companies--Chorum Technologies, WaveSplitter Technologies and Optical Micro Machine--pulled their planned IPOs last week.
The possibility that the IPO might not take off at all surfaced after Lucent Vice Chairman Ben Verwaayen said Wednesday that the company will make a decision on whether to proceed with the deal next week.
"There's no new news here. Of course we look at the market closely as we proceed with the IPO process," said Lucent spokeswoman Michelle Davidson.
Whether the IPO goes now, later or never, Lucent needs to sell some part of itself to salvage its balance sheet.
The company announced that it's considering the sale of its fiber-cable business last week and, Robert Konefal, managing director at Moody's Investors Service, believes that one of the two events must happen soon to keep Lucent's credit rating in good standing.
"If we can develop some comfort level that one of the two deals gets done either way in the near-term then, we can leave their rating alone for now," he said.
In the past few months, Moody's cut Lucent's debt to a rating of "Baa3," which is the rating just above junk grade. Konefal says Lucent's credit rating may have to be adjusted downward again if the company cannot raise the needed cash.
"The optical-fiber business might be sold for a hefty sum...of several billion dollars," he said adding that it's a good business and the only segment of the company that has not lost market share recently.
Lucent sees the unit as nonessential to its more high-growth business such as equipment for optical networks, because the projected growth rate of the fiber business is lower.
Staff writer Larry Dignan contributed to this report.