Digital United Holdings, Taiwan's largest provider of co-location and web hosting services, had been hoping to price its roughly $100 million offering on Thursday, but it has now pushed the deal back until the beginning of next week in order to complete more one-on-one presentations in the United States.
Led by Donaldson, Lufkin & Jenrette (DLJ) with Salomon Smith Barney as joint-lead and UBS Warburg as co-manager, the deal comprises 10 million common shares (1.5 million greenshoe) at an indicative price range of $9 to $11. Bankers say that although the deal has been delayed slightly, the range has not been adjusted.
Part of the reason for the delay stems from the fact that the company has just signed a new agreement with AT&T that will have a material impact on its bottom line and needs to be explained to investors. The main reason, however, stems from extremely testing market conditions.
Timing of the deal has coincided with a build-up of portal fatgiue, which came to a head during trading in New York on Tuesday. Its first victim, Daum Communications of Korea, was forced to pull a planned $180 million American depositary receipt (ADR) later that day after investors demanded discounts of up to 20% to the company's closing share price in Korea.
Other recently listed Asian portals also fared badly. China's leading internet portal Sina.com managed to hold up reasonably well, but second and third-line operators were particularly hard hit. Nasdaq-listed Sohu.com, for example, lost 25% of its value overnight on Tuesday alone, dropping $2.25 to close at $9.50. The Chinese portal listed last Wednesday at $13.
Explaining the model
Ironically, bankers say that the main resistance to Digital lies less with technology funds, but Taiwan country fund managers who have taken longer to come to grips with the company's numerous product lines.
"The company chose to list in the US because it thought the market would understand its business model better," says one banker. "This has proved the case with the specialists, but the generalists are taking more work."
Founded in 1990 as a government think tank on the IT industry, Digital's main shareholders include: the republic's Institute for Information Industry, which owns 18%; the Ministry of Economic Affairs, which owns 7%; and Asia Global Crossing, which took a 4.5% last month. Its two main business lines comprise SEEDnet, the country's second largest internet service provider after Chunghwa Telecom's HiNet and co-location/web-hosting services.
Bankers say that future growth is likely to be strongly driven by the co-location arm of the business, which has been expanding by roughly 40% a quarter. Digital is the republic's largest web-hosting company with a 42% market share, and it is also the number one data facilities provider.
As a result, valuations have been pitched against web-hosting companies in the United States, such as Exodus Communications, which houses the computers that run websites for client companies. Bankers comment that compared with Exodus, which is trading at a revenue multiple in the high teens, Digital is being pitched at 6.5 to seven times 2001 projected revenues.