RPT-IPO VIEW-Changing World to use little-used auction process

Sun Feb 1, 2009 4:49pm GMT

Related Topics

Quotes

   

(Repeating item that initially moved on Friday)

By Jessica Hall

PHILADELPHIA Jan 30 (Reuters) - Changing World Technologies Inc, which transforms animal and food-processing waste into diesel fuel, plans to conduct its initial public offering using an auction system rarely used for IPOs.

A so-called Dutch auction, named after famous Dutch tulip bulbs that were sold at auction during the 17th century, allows a company to monitor demand for its stock before the offering.

Since 1999, there have been 22 auction-style IPOs, representing about 1 percent of all IPOs over that time period, according to research firm Dealogic.

"The IPOs that have come out in an auction format have not worked well," said Scott Sweet, senior managing director with advisory firm IPO Boutique.

The biggest name to use an auction-style IPO was Google Inc (GOOG.O), which conducted a modified Dutch auction and raised $1.7 billion in August 2004. Others include software maker NetSuite Inc (N.N), research firm Morningstar Inc (MORN.O) and online retailer Overstock.com Inc (OSTK.O) have all opted for Dutch auctions.

"Google was an anomaly," said Francis Gaskins, an analyst with IPO Desktop.

"They were branded and had a large customer base. It's hard to pull off an auction IPO without a household brand name and customers. The ones that have been successful have brought a retail customer base to participate in the auction," Gaskins said.

Changing World, which is unprofitable, sells renewable diesel fuel oil and organic fertilizers, which it makes using a proprietary thermal conversion process.

The process can convert a broad range of organic wastes -- including animal and food processing waste, trap and low-value greases, mixed plastics, rubber and foams -- into fuel and fertilizer.

"This is strictly an alternative-energy play," Gaskins said. "It's trying to play off the hope that this is a hot sector."

Changing World had a net loss of $19.9 million on sales of $589,000 in 2007, according to a filing with the U.S. Securities and Exchange Commission. The company, which said it has two customers, expects to incur losses "for the foreseeable future," the filing said.

"Changing World, in any environment, is a poor IPO based on a very poor earnings picture. But add in the weak IPO market and the auction style, and you have tougher conditions," Sweet said.

"This is almost a 'best efforts' IPO," Gaskins said.

DUTCH AUCTION OFFERS LITTLE-TESTED SYSTEM

In a Dutch auction, interested investors submit offers for how much they are willing to pay for a block of shares. The final price is set at the highest level at which all the offered shares could be sold.

Traditionally, IPOs are priced and allocated by Wall Street firms, which balance the competing interests of trading clients, issuers and big investors.

Changing World aims to raise roughly $36 million through an IPO scheduled for Feb. 10, according to Dealogic. The offering's lead manager, WR Hambrecht, and Changing World did not return calls seeking comment.

"The IPO market is looking for leaders and Changing World has nothing to compel people," Sweet said.

Some proponents of the Dutch auction system said it allows an issuing company to bypass the investment banks that charge underwriting fees, and avoid competing pressure from traders that get newly issued shares at a discount that can be cashed in on the first day.

Changing World plans to list on the American Stock Exchange under the symbol "CWL" CWL.A.

OVERSHADOWED BY MEAD JOHNSON

Also scheduled to debut the same week is Mead Johnson Nutrition Co, which makes the infant formula Enfamil and other pediatric nutritional products.

Mead Johnson, a unit of Bristol-Myers Squibb Co (BMY.N), aims to raise $562.5 million through the sale of 25 million shares in an IPO set for the week of Feb. 9. The underwriters have the option to buy an additional 3.75 million shares.

The company had $2.6 billion in sales for 2007, according to a filing with the U.S. Securities and Exchange Commission.

"The demand for Mead Johnson will dwarf Changing World," Sweet said. "Pharmaceuticals are hot right now and they are in the niche of children's nutrition and health. Plus, they have proven sales and a track record." (Editing by Gerald E. McCormick)

FILED UNDER: