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IPO investors get a shot at two Linux plays

Next week's IPO schedule is crowded and includes two Linux-related offerings, which should be popular with investors.

Looking to ride the Linux wave sweeping through Silicon Valley onto Wall Street, VA Linux Systems and Andover.Net are expected to begin public trading next week.

Being affiliated with the popular open-source operating system should help VA Linux and Andover rise above the crowded field, which has more than 20 IPOs scheduled to launch.

The lineup includes a heavy dose of Net companies, such as business-to-business e-commerce company FreeMarkets and services company Agency.com. Although both are expected grab their share of the spotlight, the Linux theme is expected to stay at center stage.

Linux allows programmers to share code because of its "open source" technology model, which has bred loyalty among software developers and is an alternative to Microsoft's dominant Windows operating system. Because of its potential and growing popularity, investors have embraced Linux-related companies.

VA Linux, which markets servers, and Andover, an operator of Web sites, are Linux-related offerings, but investors will likely treat them differently, according to IPO analysts. Andover may face mixed reviews because of the unconventional approach it took with its offering.

Andover plans to use an OpenIPO process managed by its lead underwriter, W.R. Hambrecht. Under an OpenIPO, individual investors can acquire shares in an auction method, giving them the same opportunity as institutional investors who get IPOs at the offering price.

But two previous OpenIPO offerings fell flat. Ravenswood Winery, which priced its IPO at $10.50, gained only 4 percent on its first day and currently trades near its offer price. And Salon.com, which also priced at $10.50, fell nearly 5 percent on its first day and remains below its offering price.

"Andover.Net could be strike three, although it is a Linux deal and may perform well because of that," said Richard Peterson, an IPO analyst with Securities Data.

Andover operates open source-related Web sites, such as Slashdot.org, Freshmeat.net and Mediabuilder.com. These sites offer news, user forums, downloadable software and development tools.

Jeff Hirschkorn, a senior analyst with IPO.com, believes the company will do well in the market.

"The company provides developers with a process to transition from Windows to Linux. And while the company is new, it's in a hot industry," said Hirschkorn, who predicts the IPO price could be bumped up to $16 as investors enter their bids for acquiring the stock.

Andover has a pricing range of $12 to $15 a share and plans to Tune in to CNET News.com TV's IPO Forecast sell 4 million shares. The company, which hopes to raise up to $60 million, is expected to price by midweek and trade under the ticker "ANDN."

The company's revenues reached $2.6 million for the year ended Sept. 30, compared with $1.3 million for the same year-ago period. Andover's losses widened to $11 million for the year, compared with a loss of $474,000 a year ago.

Meanwhile, analysts expect VA Linux to follow the roaring success of Red Hat, which debuted in August and was the first Linux-related IPO.

Red Hat shares more than tripled on their first day of trading from their offer price of $14. The shares have continued upward since then and have been trading at about 206.

"I think VA [Linux] will be the best stock for the month of December," said David Menlow, president of IPO Financial Network. "It has all the earmarks of a runaway stock."

He added that investors who felt they missed out on the Red Hat IPO are likely creating pent-up demand for VA Linux.

VA Linux counts Cisco, IBM and telecommunications company GTE among its clients.

"Intel also owns 10 percent of the company, and people will ride that all the way to the bank," said Hirschkorn.

The company, founded in 1995, generated $14.8 million in revenues during the quarter ended Oct. 29, up more than sixfold from $2.4 million a year ago. Its losses widened to $10 million for the period, compared with a loss of $97,000 the previous year.

VA Linux is seeking to raise up to $57.2 million, based on the high end of its $11 to $13 pricing range and 4.4 million shares it plans to offer.

The company is expected to price Thursday and begin trading Friday under the ticker "LNUX." Credit Suisse First Boston is the lead underwriter.

Investors also are expected to embrace IPOs from Agency.com and FreeMarkets next week.

Agency.com was expected to begin trading today but delayed the IPO until next week, pending final approval from the Securities and Exchange Commission.

Earlier this week, the company doubled its offering price--a sign of heavy investor interest. The shares are expected to sell in the $22 to $24 range, up from $10 to $12 a share. Based on the increased range and 5.9 million shares to be issued, Agency.com could raise up to $141.6 million.

The company is being underwritten by Goldman Sachs and will trade under the ticker "ACOM."

Agency.com, which advises clients on Net business model strategies, marketing campaigns and e-commerce opportunities, is part of the growing online infrastructure industry that investment bankers say is in hot demand.

Agency raised $74.8 million in revenues during the nine-month period ended Sept. 30, up 34 percent from a year ago. The company's loss, however, widened to $16.7 million for the period from $14.1 million the previous year. Its clients include Compaq, Sprint and British Airways.

FreeMarkets, which creates customized business-to-business online auctions for buyers of industrial parts, raw materials and commodities, is also in a hot market.

"FreeMarkets will rock and roll out of the gate," Hirschkorn said. "They may end up with a 150 percent gain on their first day."

The company plans to raise up to $57.6 million, based on the high end of its $14 to $16 price range and 3.6 million shares it plans to sell. The company is expected to price on Thursday and begin trading Friday under the ticker "FMKT." Goldman Sachs is the lead underwriter.

FreeMarkets generated $13 million in revenue for the nine-month period ended Sept. 30, compared with $4.8 million a year ago. The company posted a loss of $13.5 million during the period, compared with a net profit of $89,000 a year ago.

"They've had rapid growth," Hirschkorn said, pointing to the $1 billion in purchase orders the company received in 1998 and the increase to $1.4 billion for the nine-month period ended Sept. 30.

He added that Forrester Research expects the domestic business-to-business sector to grow to $1.3 trillion in 2003 from $109 billion this year.