IPO Roundup: WJ Communications and Peco II soar
Radio frequency components maker, WJ Communications (Nasdaq: WJCI) stormed up 16 1/4, or 102 percent, to 32 1/4 in its initial public offering Friday.
Theprofitable company priced its 5.4 million shares at $16 each, the top of its $14-16 range.
The company was voted one of this week's most promising offerings by Justin Burrows, money editor of Hoover's Online. Its broadband products enable transport of voice, data, and images over fiber-optic, broadband cable, and wireless networks. The company recently refocused on the commercial market by selling its semiconductor equipment business and its telecom group.
WJ Communications is raking in profits. For the year ended Dec. 31, the company had a net income of $42.49 million on sales of $82.40 million, as opposed to an income of $14.49 million on sales of $63.57 million in 1998. Most sales go to a small number of customers; in the first six months of 2000, Nortel Networks (NYSE: NT) and Lucent Technologies (NYSE: LU) accounted for about 69 percent of sales.
Risks to investors include a lawsuit being brought against the company. WJ Communications was taken private in a recapitalization in early 2000 by Fox Paine & Company, which now owns about 80 percent of the company. In 1999, four shareholder class action lawsuits were filed against it, alleging that the individual defendants breached their fiduciary duty and that the process engaged in by the predecessor board was defective because the motivation for the recapitalization merger was the entrenchment of then-current management in office.
WJ Communications faces competition from small component manufacturers, as well as companies with product integration capabilities. It also competes with the captive manufacturing operations of large communications original equipment manufactures such as Cisco Systems (Nasdaq: CSCO), Ericsson (Nasdaq: ERICY), Lucent, Motorola (NYSE: MU) and Nortel.
Lead underwriter for the deal is Chase H&Q. Co-managers are CIBC World Markets and Thomas Weisel.
Peco II is profitable, a rare feat for young companies going public. For the year ended December 31, the company had net income of $5.25 million on revenue of $92.05 million, as opposed to an income of $3.76 million on revenue of $5.25 million in the previous year.
The company's revenues are concentrated in a small number of customers: for the 6 months ended June 30, 2000, sales to its top ten customers rose to 75 percent of net sales. Bell Atlantic, one of the company's major customers, indicated that, beginning sometime in the third quarter of 2000, it may cease purchasing Peco II's systems integration products. Net sales to Bell Atlantic were about $12.8 million in 1999 and $7.9 million for the first 6 months of 2000.
The company competes with other OEMs and distributors of DC telecommunications power systems. Its largest competitors are Lucent Technologies (NYSE: LU), which recently announced that it is seeking a buyer for its power systems business, and Marconi Communications.
Chase H&Q, Credit Suisse First Boston, and Thomas Weisel Partners, LLC, managed the offering. >