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| 2003
News and Press Releases |
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HEADLINE DISMISSAL ARCHIVED:
IPO MARKET COMES BACK TO LIFE - DEAL PIPELINE IS CROWDED, BUT MOST INVESTORS STILL CAN'T GET SHARES; QUEUING UP FOR ORBITZ
By: Rachel Emma Silverman
The Wall Street Journal, November 11, 2003
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EXCERPT: THE IPO PARTY is heating up again, but it remains strictly an invitation-only affair. October was the busiest month in more than a year for initial public offerings, with 10 deals raising nearly $1.26 billion, according to IPOhome.com, which tracks the industry. What's more, the average IPO has climbed about 33% from its offering price this year, compared with paltry gains of 1% last year. And some additional big offerings are expected in the next few months. Orbitz LLC, the popular Internet trip-booking site, is expected to go public by the end of the year. Google Inc., the Internet search engine, is also widely expected to do an IPO, although it hasn't registered yet. Yet despite the investigations, trials and settlements targeting Wall Street's IPO allocation process, it remains exceedingly difficult for ordinary investors to buy the freshly minted shares. A securities industry panel is mulling recommendations to make the IPO process more transparent. For now, though, there is little in the current batch of reforms that gives individual investors meaningful access to IPOs. Allocating IPOs has always been an exclusive and controversial process. In the late 1990s, companies going public commonly enjoyed huge run-ups in share prices in the first day, and Wall Street firms handed out hot IPO shares to executives in order to win investment-banking business from their companies. In April, as part of a $1.4 billion settlement with regulators, 10 major Wall Street firms agreed to stop this practice. But underwriters continue to dole out most IPO shares to their big institutional clients or super-wealthy private banking customers -- a practice that remains perfectly legal today. If there's a coveted IPO, the shares that otherwise would have gone to executives will likely be snatched up by institutional investors, because they spend more money with brokerage firms. Still, investors determined to snag some IPO shares have a few options. Many brokerage firms give shares to customers who keep big balances in their accounts or execute lots of trades, garnering big commissions. At Fidelity Investments, customers must have a minimum balance of $500,000 or have conducted 36 trades in the past 12 months to be eligible for IPO shares. There's a mutual fund, the IPO Plus Aftermarket fund, which specializes in buying IPO shares. One firm even conducts IPOs through auctions open to the general public. For all the excitement, it's important to remember that IPOs aren't generally great long-term investments. After their first-day burst, they tend to lag behind the market. In the three years after a public offering, the average IPO underperformed the market by 6.7% annually (not including first-day returns), according to a study of IPOs from 1980 to 2001 by Jay Ritter, a finance professor at the University of Florida, Gainesville.
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