NEW YORK-Recent blips of volatility in the stock and bond markets are no cause for alarm for wireless companies planning to tap the public capital markets this spring, Wall Street executives said.
One in three Americans now owns mutual fund shares, and some 30 million Americans own individual stocks. The Investment Company Institute in Washington, D.C., reported record-setting net inflows of new investments into mutual funds during January and February.
“The volatility is a function of the fact that we have a stock market that continues to reach higher levels. The market is inherently strong,” said Norma J. Niehoff, syndicate manager for Donald & Co. Inc., New York, a boutique investment bank. “This is a function of cash in the market, both [individual] investors and, more importantly, mutual funds that have continued cash inflows in record amounts, much of which has increasingly gone into equities. That is why there is so much interest” in initial public offerings, she said.
High-technology companies that are suppliers to telecommunications and other industries are in big demand, Niehoff said. These include software and semiconductor producers, as well as those that provide services like creating wider bandwidth, providing Internet access and managing mixed-signal and high-speed communications through networks.
“The capital markets like the wireless industry and believe in its long-term outlook,” said H.C. Charles Diao, managing director of investment banking for Prudential Securities Inc., New York.
However, he cautioned about a spring stampede to market that could cause a temporary glut relative to investor demand. “Especially with the PCS [personal communications services] participants in the C-block auction, there is the issue of crowding out if a lot of [companies] come in at the same point in time wanting to raise capital. It’s not clear if all will get what they want.”
One hurdle for such issuers already has been crossed by pioneers like InterCel Inc. and Omnipoint Corp., which were well received by the market during their IPOs and have held up pretty well since, several Wall Street executives said. Their experience will help the marketplace establish “a solid trading benchmark” for other would-be players, like American Personal Communications, which recently filed registrations with the Securities and Exchange Commission for IPO issuance, said Norman C. Frost, Jr., managing director of Bear, Stearns & Co. Inc.
Nevertheless, the marketplace also could lump many different kinds of wireless issuers into its perception of an oversupply if too many tap in at the same time, said a Morgan Stanley & Co. Inc. banker who spoke on the condition of anonymity. Like APC, Western Wireless Corp., a PCS provider, as well as Lucent Technologies Inc., which is AT&T’s telecom equipment spinoff, recently have registered with the SEC for permission to issue IPOs.
However, several bankers said that a good company story, including realistic revenue and earnings projections, is as important as good timing to market. Following a trend toward larger and larger IPOs, Lucent Technologies has registered to sell what would be the largest such stock issue in U.S. history-111 million shares at $22 to $25 per share. “As a multiple of revenues, the Lucent IPO isn’t priced too high,” Niehoff said. “It looks like it will be a successful offering.”
PCS and “the growing opportunity for digital standards” hold potential as the catalysts for “accelerating overall subscriber growth and enlarging the pie,” said Mark Cabi, telecommunications equipment analyst for Salomon Brothers Inc., N.Y.
“Compare this to last summer when valuations were compressed because portfolio managers attributed perceived [company] growth to subscriber growth, and saw a slowdown in subscriber growth,” he said.
Consequently, Cabi said he sees the market holding up well even for smaller wireless-related companies.
In the paging sector on the debt side of the equation, “there has been industry consolidation as companies try to get bigger,” said Prudential’s Diao, who worked on Arch Communications Group Inc.’s recent $275 million bond issue to help finance its purchase of Westlink Paging Inc. “To the degree that [paging companies] have spent money, they will have to live within their bond covenants.”
In terms of PCS and specialized mobilized radio, Diao and Frost said zero coupon bonds may be one way such companies will tap the public debt markets.
“Keep in mind that the IPO market is not the only market,” Frost said. “The high-yield debt market is in very good shape, with a lot of cash flowing into mutual funds.”
From the buy side, Holt Thrasher, senior associate for Broadview Associates L.P., Fort Lee, N.J., offered this perspective. “If you had money to put into a business, I’d say cable first, wireless PCS second and landline phone companies third.”
“Being focused on mergers and acquisitions, we are focused on the longer term, on technology-software, network management, systems integration-and the convergence going beyond basic telcos,” he said. “Whether the market does well day-to-day really is irrelevant.”
