In order to make an initial public offering, companies are typically dragged around the country, if not the globe, by their bankers to meet with potential institutional investors. It's crucial to the whole IPO process that this roadshow process is uninterrupted, going seamlessly from pitching the deal to pricing it. For that reason, the week before Thanksgiving is always a hectic one for bankers and companies doing IPOs, as they try to rush to get the deal to market before the holidays make buy-side customers scarce.
For that reason, the primary melody of the markets this week was played by companies making their market debuts, though there was certainly some great supporting music. So tune your radio dial now, Fool!
"Hungry Like the Wolf" by Duran Duran and Motorola
Investors may have thought that Motorola (NYSE:MOT) would be pretty full after announcing its $3.9 billion acquisition of RFID and barcode solution provider Symbol Technologies, but apparently they still had some room for dessert. Within the course of a week, the mobile device manufacturer announced that it is acquiring privately held Good Technology and Netopia (NASDAQ:NTPA).
Good, which touts Visa, Dell (NASDAQ:DELL), and EDS among its current customers, provides software for extending corporate messaging to mobile devices. Good's software isn't limited to any one serving provider, working with a wide array of devices, including offerings from Motorola and its soon-to-be-subsidiary, Symbol. Good's purchase price is rumored to have been as much as $500 million. That will likely go largely to Good's investors, including Kleiner Perkins and Benchmark Capital, which each invested roughly $200 million in the company. The buyout is seen as Motorola's attempt to become more competitive with Research In Motion, which has a stranglehold on the corporate mobile email market.
The $208 million acquisition of Netopia expands Motorola's base of broadband connectivity solutions. Netopia's business has been largely focused on providing triple play (voice, video, and data) services over DSL networks. Though Motorola believes Netopia will give them better capacity to turn the home into "the hub for seamless mobility," Netopia has struggled to turn a profit, and growth has come to a near halt over the past couple of years.
Though targeted acquisitions can often pay off for companies hoping to leverage products or technology developed by the target, many large-scale acquisition sprees have ended up destroying shareholder value. The acquisition of Good in particular sounds, um, good, but I have to wonder whether Motorola will end up with indigestion.
"Take Me Out to the Ball Game" by Citigroup and the New York Mets
In the latest sporting stadium coup, Shea Stadium is no more. The new home for the New York Mets, scheduled to open in 2009, will be emblazoned with the logo of new sponsor Citigroup (NYSE:C). In what is reported to be the largest stadium-sponsorship deal to date, Citigroup has agreed to pay $20 million per year for the next 20 years, with the option to extend it to 35 years. Though the price certainly sounds steep, the deal gives Citi, which spent $2.5 billion on marketing in 2005, rights to plaster its name all over a highly visible stadium in the financial capital of the U.S. The deal also gives the bank rights to the ATMs at the new park, plus, in all likelihood, a plethora of other perks in terms of marrying Mets blue with the name "Citigroup."
In some interesting coverage of the deal, TheNew York Times reported that the deal might not be so great for Citi or the Mets, since previous stadium branding deals done by banks have been strangely coincident with underperforming bank stocks and lousy baseball teams. As a New Jersey native and longtime Yankees fan, this aspect of the deal doesn't bother me one bit.
"Come Fly With Me" by Frank Sinatra and US Air
Airline stocks soared last week when US Airways Group (NYSE:LCC) made an unsolicited bid for Delta Air Lines. The hostile $8.7 billion offer, which consists of roughly 50% cash and 50% U.S. Air stock, was met with opposition from Delta's executive team, which says that it's committed to bringing Delta out of bankruptcy as a stand-alone entity. The challenge for Delta management, though, is to convince its creditors, who control Delta's destiny to a large extent, that Delta is worth more than US Airways' offer.
Further complicating matters, US Airways has not yet realized the synergies from its merger with America West last year. That merger took place as US Airways was emerging from its own Chapter 11 proceedings, and it was expected to deliver a lot of value in terms of synergies between the two carriers. So on top of the uncertainty over whether Delta will reject the offer, US Airways shareholders may have to wonder whether the acquisition would be as valuable as projected.
Meanwhile, investors rushed into the market, pushing up competitors UAL and AMR, as industry-watchers questioned whether this would trigger a merger mania in the airline industry. Though some say that consolidation is overdue in the industry, rhetoric from U.S. Air has focused a lot on the bankruptcy-specific advantages of acquiring Delta, so it's questionable whether more mergers are really likely.
"Hertz U-Drive (skit)" by Bud Abbott, Lou Costello, and Hertz
Bud Abbott: Don't you see? The head of the company's Hertz!
Lou Costello: That's too bad. What hurts him?
The answer to that question on Wednesday night was the pricing of the Hertz Global Holdings IPO. While private equity firms Carlyle Group, Clayton Dubilier and Rice, and Merrill Lynch (NYSE:MER) had hoped to raise as much as $1.6 billion in the offering, originally expected to go out at $16 to $18 per share, the deal priced below the range at $15, bringing in $1.3 billion. The proceeds are expected to be applied toward the company's hefty $14 billion debt load.
Investor sentiment was likely dulled by a number of factors, including the amount of money that the private equity sponsors have already taken out of the company. The sponsors paid roughly $15 billion to buy the company from Ford back in December, and despite the lackluster pricing, this offering plus $1 billion in dividends already and another post-offering dividend, should make this a pretty lucrative deal for the P/E guys. Will it be as rewarding to investors? I have my doubts, but it remains to be seen.
"Rocket Man" by Elton John featuring the Nymex
All I can say is "wow!" Excitement has been building for weeks leading up to the debut of Nymex, and it certainly didn't disappoint. With a crushing 125% pop in its first day of trading, Nymex passed Chipotle Mexican Grill as the strongest IPO of the year. The IPO was priced at $59, above the expected range of $54 to $57 per share, but still managed to blaze its way to $152 before dipping back slightly to close at "just" $133.
Based on Friday's closing price, and the company's run-rate operating data, the company is currently valued at around 74 times earnings and 42 times operating income. I would usually dismiss this as overly optimistic, but given the way that competitors such as NYSE Group (NYSE:NYX), Chicago Mercantile Exchange, and InterContinental Exchange have been trading, and the brisk growth that Nymex has seen over the past few years, I find myself somewhat less cynical. No matter what the longer term outcome for Nymex stock, anyone who managed to grab some early shares was certainly celebrating over the weekend!
Keep on rockin' with the Fools:
NYSE Group is a Rule Breakers selection. Dell is an Inside Value and Stock Advisor pick.
Fool contributor Matt Koppenheffer knows it's lonely in outer space, but that it's never lonely in CAPS. He does not own shares of any of the companies mentioned. The Fool's disclosure policy is always harmonic.
