Banking & Capital Markets

PayPal-imony? Patent Suit Delays IPO

Rival CertCo sues PayPal over electronic payment system. Elsewhere: Neogenesis back to square one, GameStop set to go. Also: Citigroup files to spi...
John GoffFebruary 11, 2002

Not a great start to the IPO week, that’s for sure. One of the planned public offerings for the week was pulled, while another was postponed.

Late Friday, management at Neogenesis Pharmaceuticals, Inc. withdrew the company’s IPO. Neogenesis, which expected to raise between $60 to $ 70 million with the offering, specializes in the discovery of small molecule drugs. J.P. Morgan was to be the lead underwriter for the scuttled deal.

The Neogenesis withdrawal does not bode well for the IPO market. Observers point out that several drug makers have plans to go public over the next few months. Indeed, with the once-hot healthcare sector calming down, investment bankers have been looking to drug makers to help revive the IPO market. Now, the reviving may need some reviving.

Meanwhile, managers at Salomon Smith Barney said they expect to price the IPO of PayPal Inc. some time this week. As CFO.com reported last week, online payment specialist was slated to go public on Feb. 6. But company management delayed the IPO after rival CertCo Inc. filed a patent infringement suit against PayPal. CertCo alleges that PayPal’s electronic payment system infringes on the patent covering the technology of CertCo’s own electronic payment system.

Observers were a bit flummoxed by the timing of CertCo’s suit. It would seem that the company could get substantially more cash out of PayPal once PayPal had substanially more cash — that is, after the company’s IPO. But the suit has definitely put the kibosh on PayPal’s stock offering, at least for the moment. The PayPal IPO was to be the first initial public offering of an e-commerce company since March of last year.

PayPal, which has 10 million members, is extremely popular among the eBay set. 68 percent of PayPal’s business volume comes from the online auction site. While PayPal is still a money-loser, the company’s revenues for the fourth quarter jumped to over $40 million. According to IPO.com, that’s a 357 percent increase from the same quarter two years ago (2000). Excluding stock-based compensation and amortization of goodwill and other intangibles, PayPal actually turned a $3.2 million profit in its most recent quarter. The company expects to raise as much as $76 million with the IPO — when the offering finally comes to market.

On a more upbeat note: GameStop Corp. is expected to launch its IPO this week. GameStop is the largest video game and PC entertainment software specialty retailer in the U.S. The company operates under the GameStop banner, as well Babbage’s, Software Etc., and FuncoLand. Management says it plans to rebrand those stores with the GameStop moniker in the near future. The company expects to raise around $320 million in the offering.

War and Pitts

Economies may rise and fall, but generally speaking, war is steady business. Latest example: shares of ManTech International Corp., a defense information technology company, closed up nearly 14 percent, at $18.21, on Feb. 6, the first day of public trading for the company. ManTech, which does a lot of business with the U.S. government, sold 7.2 million shares at $16 each, raising a larger-than-expected $115.2 million. The company had originally planned to sell just 6 million shares. ManTech said it will use the proceeds to pay off debt and acquire complementary businesses. Jefferies & Co. was the lead underwriter.

While ManTech sells software to private sector concerns as well, the company’s security-related offerings were likely what interested investors. The company provides national security systems to the U.S. government, along with software intended to help with intelligence gathering. Those applications, which are mostly bought by the intelligence community and the Department of Defense, are in high demand these days.

Meanwhile, Wimm-Bill-Dann, a Moscow-based dairy and juice producer, also did well with its IPO late last week. The company raised a little over $200 million in the initial public offering. Wimm-Bill-Dann, which reported profits of $31 million through the first nine months of 2001, is the first Russian company to launch an ADR IPO since June 2000. In case you’re wondering, the beverage specialist’s biggest sellers are J-7, Lovely Garden, Wonder Berry and, Ginger Up. And why not?

Short Takes

— On Friday, Travelers Property Casualty Corp., Citigroup Inc.’s insurance unit, filed to raise as much as $1 billion in an IPO. Citigroup, which is selling 20 percent of Travelers in the offering, plans to spin off the rest of the company to Citigroup shareholders in a tax-free transaction. Pending regulatory approval — and an okay from the IRS that the spin off actually qualifies as as a tax-free transaction — the second part of the deal should be concluded by the end of 2002. Travelers’ management plans to use the proceeds of the IPO to repay debt it owes to Citigroup. Not surprisingly, Citigroup’s Salomon Smith Barney is the sole underwriter for the IPO.

— Management at independent power producer Calpine Corp., which is under attack for its accounting practices, said it repurchased $119 million of the company’s outstanding debt. The highly leveraged Calpin used existing cash to retire the debt.

— Investors pulled $80.7 million of cash from U.S. junk bond mutual funds for the week ending Feb 6. Year-to-date, junk bond funds are the worst-performing group among all fixed-income funds, falling about 0.5 percent, according to Morningstar.