Wall Street shuns new flotations: Recession and debt levels have turned sentiment in the US against share issues, writes Larry Black

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The Independent Online
IT HAS been a year of huge stock offerings in the United States, with companies like General Motors, Equitable Companies and Waste Management coming to market with more than dollars 56.8bn (pounds 33.2bn) worth of shares by the end of September - a sum that already surpasses last year's record volume of new flotations.

But it is beginning to look as if those firms managed to get their issues to market just in time. Hard on the heels of GPA's flop in the UK, high profile 'reverse leveraged buyouts' like Revlon and Dr Pepper/Seven Up had to withdraw their offerings because of weak demand. And last week, Barnes & Noble, America's second-largest chain of bookstores, was obliged has cancel a widely criticised dollars 100m initial public offering (IPO) that was to have financed an ambitious expansion plan.

The company's owners will instead finance the programme privately, 'sending a clear signal to those who doubt our ability to continue growing' Leonard Riggio, chairman and co-owner, said.

Some market analysts say, however, that Mr Riggio - like others who have been forced to retreat from the market in recent weeks - are simply acting as though there is no recession or are choosing to ignore heavy debts acquired during the booming 1980s. And there remains a huge glut of other issuers waiting in the wings for their chance to trade in their high-interest junk bonds; the current backlog is equal to 30 per cent of the active market, says Renaissance Capital of Greenwich, Connecticut.

To be sure, healthy issues continue to find buyers and to prosper in the secondary market. Strong demand brought Tommy Hilfinger, a men's fashion designer, on to the market 10 days ago at dollars 15 a share - well above its own dollars 10 to dollars 12 range - and the shares are now trading above dollars 17.

But nearly half the 100 IPOs issued in the third quarter were priced below their initial estimates, says Securities Data, a market information service. And only 28 IPOs were announced last month, the lowest number in a year and a half.

Ironically, one of the few bright spots in the market is a renewed interest in reverse LBOs, which analysts say are coming to market better structured and priced that they were earlier in the year. The performance of some brand-name companies that have returned to public ownership - like RJR Nabisco, and the battery maker Duracell, whose dollars 450m share issue last year had doubled in value - have encouraged investors to judge such offerings by their industry prospects rather than their absolute leverage numbers.

Overall, however, prices remain weak. William Smith, an analyst with Renaissance, says this is largely 'because there are a lot of companies out there that need to be de-leveraged'.

None of which, however, will ultimately effect the year-end results for busy New York underwriters. The investment bankers have so far earned more than dollars 5bn this year, and last week any worries about the final quarter were allayed when Sears, Roebuck & Co announced plans to 'de-merge' its two biggest subsidiaries, Allstate Insurance and the Dean Witter brokerage. Between them they accounted for almost dollars 25bn of Sears' revenues last year.

(Photograph omitted)

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