CurrentOfferings.com Story:

Motorola Delays Chip Spin-off�s IPO

Howard Wolinsky, Business Writer, Chicago Sun Times, July 16, 2004

IPO mania is back, and we're not just talking the pending Google IPO.

With atmosphere feeling like the 1999 Internet boom, Chicago is in the midst of an IPO selling boom, albeit one that fizzled Thursday night. A dozen area companies have filed to go public so far this year, setting a pace that could exceed the boom of 18 filings at the top of the Internet bubble.

As part of this IPO wave, in one of the largest initial public offerings expected this year, Freescale Semiconductors, a Motorola spin-off, was to begin trading today in a computer chip market that in the breach daunted investors. The new company, which is based in Texas, had hoped to sell the 121 million IPO shares at a price between $17.50 and $19.50.

But late Thursday, chastened underwriters led by Goldman Sachs failed to find buyers for all the shares, and postponed the offering.

Despite the Freescale cratering, investors are showing an eagerness to buy IPO shares reminiscent of the Internet boom. But there's a difference in the filings this time. While many venture capital-backed dot-coms filed for IPOs in 1999, this time around, generally well established companies with track records for profitability want to sell shares to the public.

A check of filings with the Securities and Exchange Commission showed that so far this year 12 Chicago-area companies have filed to go public, and two already are trading publicly.

They are a diverse bunch that includes Standard Parking, the Chicago-based parking lot manager, which was founded in 1929 and has been traded since May; SSA Global Technologies, Chicago's largest software company; Morningstar, the 20-year-old provider of independent investment research on mutual funds; Navteq, the 19-year-old Chicago digital mapmaker, and Eagle Test Systems, the 28-year-old Mundelein provider of automated test equipment for the semiconductor industry. Strategic Hotel Capital, a seven-year-old Chicago-based "ultra-luxury" hotel real estate investment trust, went public in June.

Motorola's Freescale spin-off will be one of the biggest IPOs of the year.

The Schaumburg tech firm is selling off Freescale to enable its 50-year-old semiconductor unit to be positioned to sell its products more easily to Motorola competitors. It's also designed to enable Motorola to focus on its cell phone business and to help protect Motorola's stock from the traditional severe fluctuations in the semiconductor business.

Jeffrey Hirschkorn, principal analyst with Current Offerings., which follows the IPO business, said he was skeptical about how well Freescale will fare.

"With this deal, you're getting a company with inconsistent profitability at a time when semiconductor stocks are starting to get some negative views. Couple that with some highly questionable earnings reports from technology bellwethers, and you'll understand what problems currently plague the underwriting team handling the Freescale IPO," he said.

Motorola plans to give Motorola investors shares of Freescale later this year in the form of a special dividend.

Hirschkorn suggests that interested investors buy Motorola shares rather than Freescale's.

Byron Denenberg, managing director of KB Partners, the Northbrook VC firm, said he was surprised about the relatively quiet IPO outbreak.

"During the top of the Internet bubble in 1999, as long as a company had enough 'eyeballs' looking at screens, it seems they went public," he said. "Now, you have to have certain metrics to meet before you go public. You need six or seven quarters of profitability before any investment banking firm will look at you."

He said it will take longer for early-stage, VC-backed companies, the kind that were crushed in the Internet bust, to start coming out in IPOs.

Following the Internet crash in 2000, all companies have been reluctant to test the IPO market, he said. He said the window for IPOs opened recently for companies that had been biding their time following the crash.

Denenberg said it's not clear what investors' appetite will be for a surge of IPOs. He said companies may end up holding off. "The good news is that so many are filing. The bad news is that if too many file and they don't do well, the bankers will back off," he said.

Eleven of the 18 that filed in 1999 went public in 1999 or 2000. IPOs got a black eye from the market crash. Perhaps the most notorious IPO here was that for entrepreneur Andrew J. "Flip" Filipowski's Divine Inc., the Internet holding company, which went public in 2000 and went belly-up in 2003.

But Denenberg said the local class of 2004 looks well established and ready for prime time and have "tier-one" underwriters, including Goldman Sachs, William Blair, Morgan Stanley and Credit Suisse First Boston.

Nationally, Hirschkorn, however, said that just because the IPO market has picked up "doesn't mean quality is top-notch. We're in the midst of a cleansing effect where a majority of deal flow is looking to get out by month's end. There are some quality deals. Others bring baggage to market, including large debt and corporate parents' spin-offs." /p>

According to IPOHome, an IPO news site from Renaissance Capital, the IPO market began picking up in the first quarter this year, ending a four-year drought. "The first quarter of 2004 confirmed that the IPO market is well on its way to a full recovery," according to IPOHome.

In the first half of this year, 83 IPOs were priced compared with six in in the first half of 2003.