To Infineon and beyond

As the huge conglomerates that have long dominated Germany's economy transform themselves into sleek, focused businesses, a procession of corporate assets has come to the market.

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As the huge conglomerates that have long dominated Germany's economy transform themselves into sleek, focused businesses, a procession of corporate assets has come to the market place. Many have been sold to trade buyers, others to private equity Firms. But the preferred route for many big companies is to disentangle themselves by spinning off units as a separate company and listing them through an IPO.

That should create a steady stream of business for equity capital markets bankers. But there is a problem. These companies tend to be in the least glamorous industry sectors, and they have been a notoriously difficult sell at a time when equity investors are infatuated with hi-tech start-ups. The IPOs of Veba's logistics business Stinnes and BASF's Film processing subsidiary Agfa-Gavaert in 1999 are just two deals of this sort which met with a lukewarm reception.
The spin-off of Infineon Technologies from Siemens may seem a much more hi-tech proposition. But in fact the semiconductor industry is as much old economy as it is new: silicon has become a commodity which goes through extravagant cycles of scarcity and glut. As a result, the sale of nearly 30% of this large company, through an offering of new and existing stock, was never going to be easy.In fact, the offering is widely regarded as one of the best of this year. The stock was priced on March 12 at the top of its offering range of between e29 and e35. After the First week the price of the stock had doubled, and three months after the offering the shares were trading at a 140% premium to their issue price. Five months on, after the employee allocation lock-up period had ended, the share price was still up more than 100% from its debut.The deal, led by Deutsche Bank and Goldman Sachs, also has the distinction of being this year's largest equity offering outside the telecoms industry. The deal raised a total of e6.1 billion after the e675 million greenshoe was exercised.

As with other large German deals this year, retail investors played an important part in the offering. Some 40% of the issue was reserved for retail. Buyers may have been persuaded that the likes of Infineon have been held back by their parent companies. Another spin-off from Siemens, Epcos, Floated in October 1999 priced at e31. By the time of Infineon's IPO, Epcos's share price had climbed to e135.But the real test of the IPO may be yet to come. Siemens is obliged to hold onto its remaining stake in Infineon for at least six months after the Flotation. When Siemens decides to make its exit - and few doubt that it will want to cash in at some stage - Infineon's price is likely to come under huge pressure. And it is that stock overhang, notes one equity capital markets banker, which is the fundamental problem with such spin-offs.

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To Infineon and beyond

As the huge conglomerates that have long dominated Germany's economy transform themselves into sleek, focused businesses, a procession of corporate assets has come to the market.

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Add Your Comment

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