Banking & Capital Markets

Auto Show: GM to Add $10 Billion to Balance Sheet

Automaker also discloses it's got $136 billion in assets in SPEs. Other letters: IDT to launch IPO, and DT on hold.
Craig SchneiderFebruary 25, 2002

Twice as many initial public offerings are slated to launch this week as compared to last week. Then again, since only one company went public last week (Petco Animal Supplies), that’s not saying a whole lot.

Anyway, Integrated Defense Technologies is set to make its market debut as a public company on Tuesday, and will likely raise around $137 million in the process. The defense electronics company, which makes surface-threat electronic warfare systems and command destruct transmitters, is expected to price 7 million shares at $18 to $21 a share. Integrated reported 2001 revenue of $262.5 million for its fiscal year ended September 28 and income of $22.5 million. The lead underwriter is Credit Suisse First Boston. Integrated says it plans to use the net proceeds of this offering to repay its senior subordinated notes as well as for working capital and acquisitions.

Corcept Therapeutics, a pharmaceutical company engaged in the treatment of severe psychiatric and neurological diseases, is also expected to go public by week’s end in a $67.5 million offering. The Menlo Park, Calif.-based Corcept is expected to offer 4.5 million shares public at $14 to $16 a share. Proceeds will finance, among other activities, clinical trials and pre-clinical testing. Its lead product candidate, C-1073, is currently in Phase III clinical trials for the treatment of psychotic major depression. The lead underwriter is U.S. Bancorp Piper Jaffray.

The Integrated Defense IPO comes on the heels of Northrop Grumman’s unsolicited $5.9-billion takeover bid for TRW Inc., a provider of space and defense products including spacecraft and satellites, defense communications equipment and high-energy lasers. Last week, David Cote, TRW’s CEO, unexpectedly quit to take the same position at Honeywell International. No word yet whether Lockheed Martin, Boeing Co. or others will wheel out a better offer for TRW.

Hold, Please: Deutsche Telecom’s Cable Sale, Wireless Unit IPO, Delayed

The German cartel office has decided to block Deutsche Telekom’s planned $4.8 billion sale of its cable assets to U.S. media group Liberty Media. That, according to a Reuters story, quoting sources close to the antitrust investigation. “The deal is definitely over,” the source said. “The written decision is not finished yet, because they want to be careful.” A statement from the regulators is widely expected to come on Tuesday, two days before the deadline. Management at Deutsche Telekom had planned to use the proceeds from the sale to reduce its debt load. Credit ratings agency Moody’s on Monday said it may cut Telekom’s long-term debt rating if the deal collapses. Last week, Deutsche’s chief executive said the telco may have to delay the IPO of its mobile unit until 2003.

GM’s Latest Convertible

Management at General Motors announced on Monday that the company has filed with the Securities and Exchange Commission to issue $2.5 billion of 30-year convertible bonds. The automaker intends to use the proceeds to plump up its cash position, reduce the company’s underfunded pension liability, and fund its post-retirement health care obligations. “GM is taking steps to strengthen its balance sheet by $10 billion in 2002 through a combination of improved cash flow, dividends from GMAC stemming from its anticipated earnings strength, proceeds from the proposed split-off and merger of Hughes and public offerings,” the company said in a statement. Pricing for the GM convertible is expected this week.

Additionally, management at GM plans to increase production for the first quarter and full year. With that increase, the company is also boosting its profit estimates for the year. Further, in the wake of the Enron scandal, the automaker provided added disclosure on special purpose entities. The company said it has $136.2 billion in assets in special purpose entities, partnerships which the company uses in a manner “consistent with conventional practices.” Given the lack of disclosure coming from most companies on their SPEs, it’s hard to tell what “conventional practices” GM management is referring to here. Nonetheless, the automaker noted that no GM officers, directors or employees hold equity interest in the partnerships.

More Convertibles

Gap Inc. also plans to sell as much as $1 billion in convertible bonds to raise cash and cut interest expense, according to Bloomberg, citing people familiar with the sale. The troubled retailing giant’s credit rating was cut to junk status on February 14 after it obtained a $1.3 billion asset-backed credit line through J.P. Morgan Chase & Co. and Salomon Smith Barney Inc., who are reportedly also managing the convertible sale. The convertible sale, together with the credit line, will provide Gap with enough cash to fund its operations, investors in the story say. Other companies that have also issued convertible bonds as interest costs rise for other financing include Tyco International Ltd. and Lucent Technologies.

SEC On Disclosure, On the Web

The Securities and Exchange Commission will announce a list of roundtable panelists and moderators this week for a two-day roundtable discussion next month in New York City and Washington, D.C. The topic: examining proposals for better protecting investors by reforming financial disclosure and auditor oversight. Roundtable panelists will include experts from corporate America, securities regulation, financial services, academia and other fields.