Greedy to the Bone

di•vine (di-vin’)

1. Heavenly; perfect.

Any idea where I’m going with this one? If not, let me be frank. There’s an
IPO offering in the pipeline that’s overstayed its welcome. So, I’m giving
my two cents and spreading the word on this slight of hand. You’d do better
to hit the track and bet the ponies than give a second thought to investing
in the so-called B2B incubator divine

Decked out in his signature ponytail and diamond stud earring, the
company’s skipper, Flip Filipowski, is the millionaire mogul who sold his
PLATINUM technology software firm to Computer Associates
last year for $3.6 billion. With a $300 million piece of
the pie and a non-compete hanging around his neck, Flip decided to head
into the incubator business.

Divine has 52 companies hurriedly stuffed into its portfolio, in
preparation for its own whirlwind IPO. But there’s nary a one that you or I
have ever heard of, and barely half have made a nickel to date. In a
crowded field of me-too incubators, divine has one of the least impressive
stable of sibling companies. In addition, the firm posted a paltry $5
million in revenue for the first quarter of this year, on bleeding losses
of $77 million. But neither shortcoming has been able to slow the incubator
from reaching for the moon with its bloated and underwhelming IPO.

In theory, divine interVentures plans to cash in its chips by spinning off
incubatees into lucrative public offerings. However, investors are unlikely
to greet this group of no-names warmly, when their parent holding company
can hardly get its own house in order, let alone get its own IPO out of the

CS First Boston was tentatively scheduled to handle this IPO, but divine
canned the underwriter when Credit Suisse recommended holding off until
fall. Wasting no time in search of a second opinion, divine tapped
Robertson Stephens to serve as master of ceremonies. Despite the nastiest
market correction Net stocks had ever laid eyes on, the incubator wouldn’t
take no for an answer.

The company had originally dog-eared a staggering $350 million public
offering, planning to float 50 million shares between $6 and $8 a pop.
Folks, that’s a truckload of funny money by any measure for a newcomer that
has yet to bear any fruit. With little investor interest, divine trimmed
its shares to 20 million, and still with no takers, lowered the number of
shares yet again to 14 million. All the while, the company bumped its price
range higher to help offset the slash-and-burn.

First climbing to $13 to $15 apiece, the pricing finally settled at a more
modest $9 to $10. But there’s more than 100 million reasons why divine was
so careful to balance the offering size, and so anxious to get into bed
with an underwriter who would force this IPO on apathetic investors.
Investor interest or not, divine has numerous commitments from blue-chip
backers, that if the incubator completes a minimum $120 million offering
before the end of July, it stands to receive well over $100 million in
private placements directly following its IPO.

So as you can see, it’s a simple matter of economics at the expense of
retail investors. Now that the firm has postponed its IPO for the third
time, expect to see some ridiculous eleventh hour juggling by both divine
and Robertson Stephens to get this offering into the new issues market –
and fast. Flip is under a tremendous amount of pressure to produce a winner
in divine. With nearly a half billion dollars worth of private investors’
money already invested in the incubator, a shelved IPO could be one of the
costliest train-wrecks we’ve seen in a while. Because by midnight August
1st, this incubator turns back into a pumpkin.

Any questions or comments, love letters or hate mail? As always, feel free
to forward them to [email protected].

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