The roughly $100 million common share offering for Digital United Holdings was finally pulled on Monday after failing to build a big enough order book within the company's original indicative price range.
Led by Donaldson, Lufkin & Jenrette (DLJ), with Salomon Smith Barney as joint-lead and UBS Warburg as co-manager, the deal was to have comprised 10 million common shares with a 1.5 million greenshoe. An indicative price range had been set at $9 to $11, equating to a revenue multiple of 6.5 to 7 times projected 2001 revenues.
Bankers say that since the company is not in any immediate need of funds, it has decided to postpone the deal and wait for better conditions in the autumn. "An issuance window for Asian internet stocks opened and closed quite fast about three to four weeks ago," comments one banker. "Unfortunately the lead times for deals like this are such that Digital ended up coming right in the middle of a sector rout.
"The company didn't want to do a bad deal that performed badly in the aftermarket," the banker adds, "and therefore, when it was obvious how bad sentiment towards these kinds of stocks really is at the moment, it decided not to even explore the option of lowering the price range or issue amount. It could have just covered the book, but there would have been no quality aftermarket performance."
Bad timing
The company had initially been scheduled to price the deal last Thursday, but postponed for a few days to conduct more one-on-one meetings with investors. Such a move normally constitutes one of the first warning signs that a deal is faltering, but in this instance was necessitated by the signing of an agreement with AT&T that would have a material impact on the company's balance sheet.
However, it also coincided with a further crumbling of investor support for the sector, with Nasdaq internet portals Sohu.com and Netease.com now trading at almost half their original issue prices. Both stocks had been particularly hard hit by a wave of selling at the beginning of last week which continued over into this week.
Having listed on Wednesday 12 July at $13 per American depositary share, for example, Sohu.com was down to $9.50 as of last Thursday and $7.25 by Wednesday 26 July.
Digital, which is 18% owned by Taiwan's Institute for the Information Industry, recently completed a private round of financing to fund its expansion plans. Asia Global Crossing took a 4% stake for approximately $25 million and a handful of Taiwanese cable television operators a 1% stake for $8 million.
The company is Taiwan's largest provider of co-location and web-hosting services. And via SEEDNet, it is the republic's second largest internet service provider after Chunghwa Telecom's HiNet.
