When A Parent Lets Go

A while ago a reader asked if I had noticed a correlation between “when
the parent company of an
IPO reaches a peak (during a run in anticipation of the IPO) compared to
the actual IPO date of the offspring?”

I hadn’t, and wasn’t sure any correlation would have meaning, since the
market often doesn’t know exactly when an IPO is going to come out until
it prices the day of, or day before, the offering.

But the reader supplied some interesting data regarding recent Internet
IPOs and how the parent companies’ stocks performed in the days prior to
the eventual offering. Using closing prices, we find that:

  • USA Networks (USAI) peaked four trading days before TicketMaster
    Online-CitySearch’s (TMCS) Dec. 3, 1998 IPO.

  • Creative Computers (MALL) peaked five trading days before uBid’s
    (UBID) Dec. 4, 1998 IPO.

  • Data Broadcasting (DBCC) also peaked four trading days before the Jan.
    15 ticker debut of its spinoff, MarketWatch.com (MKTW).

  • “Gen Y” fashion marketer dELiA*s (DLIA) – yes, four days before iTurf
    (TURF) went out on April 9.

You also could include high-tech trade publisher Ziff-Davis (ZD), whose
shares peaked two trading days before ZDNet’s (ZDZ) initial public
offering on March 31. But that “peak” represented only a 7.7% gain over
the previous day’s close. ZD shares actually closed higher than that
three, five and six trading days before.

So what has been the recent stock performance of bookseller Barnes &
Noble (BKS) and investment bank Donaldson, Lufkin & Jenrette (DLJ), the
two parent companies with spinoff Internet IPOs due any day now? (Note:
barnesandnoble.com began trading early Tuesday afternoon.)

The book retailer’s stock hardly moved last week, closing each day
between $33 and $34.88. And it closed Monday at $31.75. It looks like
BKS got a pre-IPO slump, rather than a pre-IPO bump.

As for DLJ, its stock hit its recent high point way back on May 13, when
it closed at $77.50. It stayed near the $74 per share mark for most of
last week, before sagging to $68.63 on Monday. Again, no visible bump
prior to the spinoff of its Internet IPO.

Now let’s quickly flip things around and look at post-IPO performance.

  • USA Networks dropped 9.3% to $30.63 with heavy trading on the day of
    Ticketmaster’s IPO, and then sold in the high $20s for most of the next
    two weeks.

  • Creative Solutions plunged 25% to $26.25 when online auctioneer uBid
    went public, kicking around in the high teens until the stock caught
    fire in the week before Christmas.

  • Data Broadcasting plummeted 30% to close at $21.75 on the day that
    MarketWatch.com had its monster debut. DBCC mostly has been closing
    between $13 and $17 since.

  • dELiA*s rose 44 cents to $31.75 when iTurf’s IPO came out on April 9,
    then peaked two trading days later at $36.38 before getting caught in
    the mid-April market corrections, eventually falling to $16.38 on April
    19.

  • And Ziff-Davis fell 13% to $21.50 on the day ZDNet Online went public.
    From there the parent stock quickly headed into the teens, where it has
    remained.

Four of these five parent stocks, then, lost considerable value on the
day of the spinoff IPO, and then headed further down for at least two
weeks.

Given the reaction of the market to barnesandnoble.com’s IPO filing on
March 18, it seems to make sense that Barnes & Noble might buck the
trend. The book retailer’s stock rose 20% that day in reaction to the
news that it planned to shed itself of its money-draining online
venture.

Through noon Tuesday, however, Barnes & Noble shares were trading at
$29.63, 6.7% below Monday’s $31.75 closing price. We’ll find out soonenough if it can rally. And later this week, it should be DLJ’s turn.

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