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More and more IPO filings coming up blank

Published Sep. 6, 1998|Updated Sep. 13, 2005

For all the hoopla surrounding Goldman Sachs Group LP's plan for a first-time stock sale, the largest U.S. investment banking partnership didn't have much to say three weeks ago when it registered its initial public offering with the Securities and Exchange Commission.

Instead, Goldman submitted what is known as a "quiet filing," littered with blank spaces that gave few clues about the real size and scope of its offering. Where Goldman had to estimate how much money it would raise in the offering so it could calculate an SEC filing fee, it plugged in a nominal $10-million figure _ for an IPO analysts expected to bring in $2.5-billion or more.

Before selling any shares, of course, Goldman will be required to provide more details, including the percentage of the firm to be sold to new investors, how many shares will be offered and how much it hopes to get for them. Like Goldman, though, more companies and underwriters now leave those estimates out of their first submission to the SEC _ a move that lets them get the complicated IPO process rolling without running the risk of publicizing an estimated offering size and price they might not be able to get.

For investors angling for an allocation of hard-to-get IPO shares, it is difficult to judge their allure without at least estimated price information, analysts say. "Ideally, you want as much information as possible," said Randall Roth, an analyst with Renaissance Capital Corp., an IPO research firm in Greenwich, Conn.

The trend is growing. In July, more than half of the first-time IPO filings submitted to the SEC left out details on the number of shares and expected price. A year earlier, only about a third of the filers did the same.

By keeping certain details secret in its first SEC filing, Goldman, which would not comment on its registration, adopted a strategy that has been used in many of 1998's hottest stock sales. Similar IPO quiet filings were made by Broadcast.com Inc., MicroStrategy Inc., DoubleClick Inc., Duane Reade Inc. and Restoration Hardware Inc.

There is little controversy when the price or number of shares being offered are increased in response to keen investor demand. Companies and underwriters, though, do not want to be faced with cutting initial estimates if market conditions change.

"If you set a range and it goes down, it just looks worse," Roth said. Because of that, IPO planners think it is best to follow a strategy of "when in doubt, say nothing" at the start, and fill in details later in an amended filing, Roth said.

Those concerns are only heightened in falling or uncertain markets like the world has seen in recent weeks, analysts say. That has prompted more companies and underwriters recently to keep details to themselves in the early stages of an IPO.

"They can negotiate for when they think the window of opportunity is best and avoid the negative aura of a downward revision which casts doubt upon the viability of the deal," said David Menlow, president of the IPO Financial Network.

The SEC permits quiet filings, and does not generally get involved in underwriting decisions about the timing and price of an offering. IPO rules are designed to give companies and underwriters flexibility in planning stock debuts, as long as amended documents make the proper disclosures and accurately calculate filing fees before shares are sold, an SEC spokesman said.

When selling shares to the public for the first time, companies must file for SEC approval detailed registration statements and prospectuses, with hundreds of pages of information about the company and its business, financial statements and disclosures about risks the company could face.

Final offering details often change, and usually are not set until immediately before a stock sale. Even preliminary filings have generally estimated how big a stake will be sold to new investors, and an expected per-share price range. Those numbers let a would-be investor compare estimated per-share earnings and other key figures with a company's publicly traded peers.

It is those details that increasingly are left out of these even more preliminary first-time filings.

For underwriters and companies, a quiet filing gives the SEC staff the needed weeks to pore through and approve reams of an IPO's other prospectus material, without risk that a market slump might force companies or underwriters to lower initial price estimates.

"You want to get into the pipeline at the SEC," said Ed Bradley, a managing director with Legg Mason Wood Walker Inc. in Baltimore. "And if you're in a volatile market, you want to put off valuation."

With a quiet filing, investors interested in moving quickly to snare IPO shares must rely on other prospectus information _ such as competition, sales growth and other financial history, and management _ to get hints about a company's prospects before a more complete prospectus gives fuller information.

The lack of detail in first-time filings can, in some cases, give an edge to investors who already know enough about a company or its competitors to know, even without seeing final numbers, that they probably will want to ask underwriters for an allotment of shares.

"If it's a company in a hot area, so you're anticipating it going public, you can get ahead of the Street" before a prospectus with estimated offering details comes out, said Stefan Cobb, who manages $800-million in small- to mid-cap stocks for Sirach Capital Management Inc. in Seattle.

"If I had gotten an early read on Broadcast.com, then perhaps I could have gotten in a bit earlier" and reserved more shares, Cobb said. The investor bought "several thousand shares" in the Internet broadcaster. In one of history's most successful IPOs, the company's shares more than tripled from the initial $18 offering price to as much as $74 on its first trading day July 17.

Underwriters and companies likely will continue to look more frequently to quiet filings, at least until world markets begin to recover from current uncertainty and investors look more eagerly for new offerings.

"A lot of it has to do with appearances," said Tom Taulli, research director at IPOMonitor.com. With any uncertainty about an IPO's prospects, underwriters "don't want to put themselves on a hook," he said. "In this market, unless you're an Internet company, the environment isn't that great."

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