Biotech Values

[DewDiligence]

Stock Offerings Close in Record Time

http://online.wsj.com/article/SB124079851903057487.html

›APRIL 26, 2009, 10:57 P.M. ET
By LYNN COWAN

Companies and bankers aren't taking any chances with follow-on stock offerings in the U.S.: They're quietly lining up large buyers over the course of a single day before selling the deal to the world overnight.

Follow-ons, in which publicly traded stocks raise money by selling additional shares, have perked up this year -- along with the broader market -- after a slowdown in late 2008. But the types of follow-ons have changed since the beginning of 2008.

In a trading environment that can still be volatile, bankers and companies don't want to follow the traditional practice of marketing a deal over several days and then gauging investor interest. Instead, they are reaching out to large institutional investors such as mutual funds to make sure there's sizable interest, swiftly building a book of orders after the closing bell, and pricing before the market reopens the next day.

About 72% of U.S. follow-ons in the first quarter were sold in less than one day after-hours, compared with 32% in the same period of 2008, according to data from Dealogic.

"Usually the companies will get their earnings out of the way, announce late in the afternoon, and it's sold out in minutes," says Ben Holmes, publisher of research site Morningnotes.com. "A lot of them are completely done before we even have a chance to indicate interest -- they'll be announced as presold."

Bankers said they often tap big existing shareholders to gauge appetite for deals. Such buyers "don't want to be diluted and can make quick investment decisions," says Mohit Assomull, head of U.S. equity syndicate at Morgan Stanley.

…Bankers at Merrill Lynch say that private discussions with large investors require legal agreements -- known as "wall crossings" -- barring them from trading in the stock until the deal is done.

While wall-crossed deals gained some traction last year, and overnight offerings have been on the rise for several years, combining both has taken off in the past two months. The off-hours nature helps attract large investors who don't want to be barred from trading the stock for too long, and many companies prefer it, too.

"Ensuring that a large chunk of a follow-on is already spoken for, and completing the transaction in less than 24 hours, maximizes the chance that the deal will get done, and minimizes the risk that the market will turn against the stock," says Daniel P. Cummings, who shares the same title as Ms. Carnoy at Bank of America Merrill Lynch.‹