One on One with David Menlow, President of the IPO Financial Network
Thursday, November 16, 2006
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SUSIE GHARIB: Not such a roaring debut today for Hertz Global Holdings. The company's 38 million shares of stock were poorly received, closing at $15.72, up just $0.72. The rental car company was bought from Ford Motor back in December by a private a consortium of equity firms including the Carlyle Group and a unit of Merrill Lynch. Since then, the owners paid themselves a $1 billion dividend, significantly beefing up Hertz's debt load. Analysts say that's one reason today's IPO was viewed with a wary eye on the Street.
Well, joining us now with more analysis about the IPO market, David Menlow, president of the IPO Financial Network. Hi, David.
DAVID MENLOW, PRESIDENT, IPOFINANCIAL.COM: Hi, good to be here.
GHARIB: The IPO that everybody is talking about tonight is Nymex, the New York Mercantile Exchange that's going to go public tomorrow. Still waiting to find out where it is going to be priced. But what's your view on the stock? Are you recommending it?
MENLOW: This is the stock that really nobody even had to think about as far as whether they should own it. In fact we're telling all our clients there are two conditions to ownership in this stock. You buy it when it goes up and you buy it when it goes down. Mostly because of what we saw with the Chicago Mercantile Exchange that came public four years ago at $35 and you're seeing huge numbers into the 500 range. It could be a duplication of that.
GHARIB: We've seen a number of exchanges that have gone public recently. The New York Stock Exchange here where I'm broadcasting, NASDAQ where you are and also the Chicago Board of Trade. Why are these exchanges so hot right now with investors?
MENLOW: The velocity of money is probably the best way to describe why there is an attraction to this type of an industry. And if you look at what's happened with the innovativeness of all these exchanges, they've come up with new products to meet the demand in the marketplace and those new products are constantly generating additional capital. So since it's a transaction-based business, it's a natural that they should increase the revenues and their margins.
GHARIB: Looking at Hertz and KBR that I just reported on, why did KBR do well and Hertz not so well?
MENLOW: The Hertz offering I think this is really part of the scourge in the financial markets that we're calling all these private equity deals that are sponsored by the private equity firms. People are starting to wake up and say why are we putting money in the pockets of the private equity sponsors, rather than into the company where it can do the most good? And if you contrast that against the KBR, that's a situation where you have a company that has a global footprint that's amazing even though they have problems with their perception in Iraq. This is a company that is going more towards the energy and chemicals division, very high margins and $100 billion capital expenditure budget probably for the next couple of years.
GHARIB: And KBR will still -- its biggest shareholder will still be Halliburton. It's going to own 83 percent of the shares. That's not an issue for investors.
MENLOW: I don't believe that's going to be a problem at this point. Usually what these companies do on the spin-offs is they will give a taste to the marketplace to keep it under 20 percent ownership that goes into the public hands, tax implications for the existing shareholders. But over time we would probably expect to see Halliburton sell more and more shares, but more likely at a higher price.
GHARIB: Dave, as you look back on 2006, there were a lot of IPOs. Any one that stands out as a real winner?
MENLOW: I think the real big winner has to be the Mastercard offering. This was the biggest surprise for so many people, a stock that opened only with a 3.3 percent gain from its IPO price and I think at tonight's close it was up 142 percent. That's in less than a six month period of time and similar results for a stock called J. Crew, but only a 72 percent higher - well, gain I should say.
GHARIB: Still very, very good. So we saw that the IPO market picked up some strength this year with the value of like $37 billion worth of IPOs. Do you see that trend continuing into 2007?
MENLOW: Yes. I clearly see this continuing because we are in a very healthy market on a foundation basis. We're not talking about financial excesses. The only problem that I see is the merger and acquisition activity, the private equity sponsored deals coming back into the marketplace throwing 50, 60, 80 million share offerings out there and people are just going to finally say you know what? We've had enough of these deals and they're not going to be receptive in the marketplace to taking them, vis-a-vis what happened today with the Hertz offering.
GHARIB: All right David. Thank you very much. We appreciate you coming on the program.
MENLOW: Thank you.
GHARIB: We've been speaking with David Menlow, president of the IPO Financial Network
