Salon slips on trading debut

The company, which transformed its Salon online magazine into a network of Web sites on news, books, and other topics, falls below its offer price as it begins trading for the first time.

SAN, which transformed its Salon online magazine into a network of Web sites on news, books, and other topics, fell below its offer price as it began trading for the first time.

The San Francisco-based company fell 0.5 to 10 as about 2.2 million shares changed hands on the Nasdaq Stock Market. Earlier, the shares fell as low as 9.88 and reached a high of 10.81.

Salon's drop will fuel debate over the merits of the unorthodox auction process used to distribute the company's shares and also suggests that investors were not enthusiastic about the company's business model, said David Menlow, president of IPO Financial Network. "The [auction] concept looks good on paper," he said. But "if the bulk of the demand has been met through the pricing, where is the aftermarket demand going to come from?"

Traditional IPOs are expected to rise in their first day of trading as investors excluded from the initial sale--where the shares usually sell for less than the market will bear--can buy shares in the secondary market.

The auction process used to sell Salon shares, pioneered by the company's underwriter, W.R. Hambrecht, uses a computer to gauge overall demand and set a price that reflects this demand.

This works well where there is strong demand for a stock, as individual investors get a better chance of buying the shares and the issuer raises more capital than it might by selling discounted shares, Menlow said.

Where demand is weaker, as with Salon, the shares may fall in their first day, causing investors to shun them further, he said.

W.R. Hambrecht, which was founded by West Coast banker Bill Hambrecht, first employed its auction system with Ravenswood Winery, a California wine maker that it took public in April at $10.50 a share. Those shares have traded at or just above that price since then.

Salon sold 2.5 million shares at $10.50 yesterday, raising $26.3 million. The shares were priced at the bottom of the $10.50 to $13.50 range set by W.R. Hambrecht. The sale represented a 23 percent stake and gave the company a market value of $112.7 million.

Salon runs ten Web sites providing information on comics, health, technology, and other topics and runs online communities such as The Well.

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