The IPO Buzz: Last Lap for 2009’s IPOs

This week’s calendar opens with the billion-dollar baby Cobalt International Energy (NYSE: CIE – proposed) and ends the week, the month and the year with National Beef (NYSE: NBP – proposed).

 

Cobalt International was formed in November 2005. It has racked up an accumulated deficit of $322 million and is still looking to put its first dollar in the cash register. That’s right – the “No Sales” flag pops up.

 

Cobalt bills itself as, “ … an independent, oil-focused exploration and production company with a world-class below salt prospect inventory in the deepwater of the U.S. Gulf of Mexico and offshore Angola and Gabon in West Africa.”

 

Now back to reality — the prospectus lead off its 15-page “Risk Factors” section with the opening statement: “We have no proved reserves and areas that we decide to drill may not yield oil in commercial quantities or quality, or at all.”

 

Nevertheless, the company has an impressive list of shareholders, including Carlyle/Riverstone Global Energy; Goldman Sachs Group, and KERN Partners Ltd.

 

The good news is the company plans to use the proceeds to fund its capital expenditures through 2011; for other related operating expenses, and for general corporate purposes. The prospectus also stated: “Pending use of the proceeds of the offering, Cobalt intends to invest the proceeds in interest bearing, investment-grade securities.”

 

This is different from other VC-backed IPOs where it is normal to see some of the proceeds from the offering going to pay out “dividends, management fees, etc.”  

 

Cobalt plans to offer 63 million shares at $15 to $17 each to raise $1 billion. The deal is expected to be priced on Tuesday evening, Dec. 15, to trade on Wednesday morning.

 

So where’s the beef?

 

National Beef believes it is one of the largest beef processing companies in the U.S. The company markets its own branded products under several trade names, such as Black Canyon Angus Beef, Black Canyon Premium Reserve, Certified Premium Beef, Naturewell Natural Beef, NatureSource Natural Angus Beef, Vintage Natural Beef and Imperial Valley Premium Beef.

 

Based in Kansas City, National Beef has been around since 1992. It employs about 8,900 people. Over the last 12 months, National Beef earned $143 million on revenues of $5.5 billion.

 

However, National Beef’s industrial sector has been an underperformer. Year to date through Friday’s close on Dec. 11, the Dow Jones U.S. Food Producers Index (DJUSFO) was UP14.3 percent versus a 22.5 percent gain for the S&P 500 (INX).

 

National Beef plans to offer 17.3 million shares at $15 to $17 each to raise $276 million. The deal is expected to be priced on Thursday evening, Dec. 17, to trade on Friday morning.

 

Last week’s calendar boasted four Chinese IPOs. By week’s end, one IPO had been postponed (Trony Solar Holdings); one company had been acquired (Linkage Technologies International Holdings); one IPO had been priced below filing range and started trading sharply lower (China Nuokang Bio-Pharmaceutical); and the last IPO turned out to be the week’s disaster (Concord Medical Services Holdings).

 

On Wednesday evening, China Nuokang (NASDAQ: NKBP) priced its IPO of 5 million shares at $9 each, DOWN from its filing range of $10 to $12 per share. The deal opened on Thursday at $8 per share –- down a full point — and closed the week at $8.96, DOWN 0.4 percent, or 4 cents, from its initial offering price.

 

On Thursday evening, Concord Medical Services Holdings (NYSE: CCM) priced its IPO of 12 million shares at $11 each. That was near the high end of its revised $9.50- to $11.50-per-share filing range. Its initial filing range had been at $9- to $11-per share. The deal opened on Friday at $10 per share -– down a full point — and closed its opening day at $9.50, DOWN 13.6 percent from its offering price.

 

Reaching back to August, there is a strong parallel between the Concord Medical IPO and CDC Software (NASDAQ: CDCS) another “hot,” “hot,” “hot” Chinese IPO. The consensus of professionals heralded both IPOs with a 3-Star SCOOP rating (up $1 to $3 per share). Each deal turned out to have been a surprise. And each wound up being a disaster.

 

On Wednesday evening, Aug. 5, CDC priced its IPO of 4.8 million shares at $13 each, on the high end of its $11- to $13-per-share filing range. The deal opened on Friday morning, Aug. 6, at $13 -– unchanged — and tanked, closing its opening day at $9.99 per share, and ending the week at $9.60, DOWN 20 percent from its initial offering price.

 

In both case, the same pre-pricing stories had been circulating — each deal was reported as being multi-times oversubscribed and allocations were being given out with an eyedropper. 

 

Reportedly, in both cases, people said they got small allocations. Then the same story emerged afterwards that some buyers got full allocations. If that were the case, then the expected aftermarket orders were filled from the shares being offered.

 

The only lesson learned -– if there is any: Beware of “hot” Chinese deals said to be oversubscribed and being priced late in the week.