IPO Watch: American Water Works
www.amwater.com
(Nasdaq:AWK)
Scheduled for the week of April 21
$1.6 billion estimated proceeds
$4 billion estimated post-money valuation
Water is necessary for life. We can engineer around petroleum and probably will one of these days, but we will not be able to figure out a substitute for water. Someday, the Great Lakes region will be America’s Saudi Arabia.
Rather than buy Cleveland real estate right now, you could consider shares in American Water Works. It’s an old-line water utility that’s been around in one form or another since 1886. The company now serves customers in 32 states and one Canadian province. Right now, it’s 100% owned by RWE, a German water utility. RWE has been trying to lighten its American Water Works stake for a while and has been hampered by the lousy stock market. This offering is for 40% of RWE’s position, and the company says it would like to sell more of its stock in the future.
The deal might be a tough sell for those who can’t navigate financial statements. American Water Works has been losing money on a GAAP basis, reporting a loss of $342.8 million in 2007 on revenues of $2.2 billion. However, part of that loss came from $509.3 million in non-cash goodwill impairment charges. The company has been acquiring water utilities around the country for the past 40 years, so it now has $2.4 billion in goodwill on its balance sheet, after years of amortization (when that was the accounting practice) and after more than a few impairment charges. Hence, the reported loss has to be considered alongside the $473.7 million in cash from operations that shows up on the statement of cash flows. Because of the goodwill, that’s a more accurate measure of American Water Works’ strength; if the company does not take impairment charges (which is likely when it becomes an independent business reporting earnings every quarter), the bottom line is likely to be in the swim.
Upcoming IPOs:
Digital Domain (www.digitaldomain.com; (Nasdaq:DTWO); April 21; $285.3 million post-money valuation): This company creates digital special effects used in movies, television, commercials, and websites. Its staffers have won Academy Awards for their expertise. Digital Domain raked in $78.8 million in revenue in 2007, but it lost $20.2 million. The deal proceeds will be used to pay down debt, which might curb the losses, but not by enough to put the company in the black.
Intrepid Potash (www.intrepidpotash.com; (NYSE:IPI); April 21; $1,886.3 million post-money valuation): Intrepid mines for potassium-based compounds that are used in fertilizers. It’s a profitable business, bringing in $213.5 million in revenue and $29.7 million in profits for 2007. Given increased demand for agricultural production to meet biofuel demand and feed a growing world population, the company is in good shape to grow. The company was formed as a rollup of several different potash mines, and a fraction of proceeds will be used to complete an asset acquisition. The rest will be used for debt repayment and general corporate purposes.
The Worst of the Worst:
When the markets are hot, investors sometimes believe that an IPO is a sure-fire path to wealth. Plenty of IPOs turn out to be disasters, though, and it often has nothing to do with the market and everything to do with the company. (That’s why you have to do research, even in a hot market.) Here’s a look at the two worst IPOs of the past year:
Superior Offshore International ((Nasdaq:DEEP); April 19, 2007; $385.2 million post-money valuation; $21.3 million current market cap): You can’t blame this one on the market. Superior Offshore provides undersea construction services for oil exploration, and that’s a pretty hot market right now. However, this company was making the transition from diving services to offshore oil services, the latter requiring a lot more expensive equipment. With expensive equipment comes the potential for liquidity problems, which Superior Offshore ran into. It hasn’t filed financial statements for almost six months, and it looks like the business is headed for Davey Jones' Locker.
ImaRx Therapeutics ((Nasdaq:IMRX); July 25, 2007; $50 million post-money valuation, $4.3 million current market cap): Should it be called “I’m a wreck?” ImaRx is a biotechnology company looking for treatments for vascular disorders. It had trouble getting its IPO done, and now it’s having trouble making a go of it. Clinical trial results for its lead product for treating stroke, MRX-801, were not as great as hoped. It’s a risk that comes with biotech investing, all in the hopes of making a big profit.
(Nasdaq:AWK)
Scheduled for the week of April 21
$1.6 billion estimated proceeds
$4 billion estimated post-money valuation
Water is necessary for life. We can engineer around petroleum and probably will one of these days, but we will not be able to figure out a substitute for water. Someday, the Great Lakes region will be America’s Saudi Arabia.
Rather than buy Cleveland real estate right now, you could consider shares in American Water Works. It’s an old-line water utility that’s been around in one form or another since 1886. The company now serves customers in 32 states and one Canadian province. Right now, it’s 100% owned by RWE, a German water utility. RWE has been trying to lighten its American Water Works stake for a while and has been hampered by the lousy stock market. This offering is for 40% of RWE’s position, and the company says it would like to sell more of its stock in the future.
The deal might be a tough sell for those who can’t navigate financial statements. American Water Works has been losing money on a GAAP basis, reporting a loss of $342.8 million in 2007 on revenues of $2.2 billion. However, part of that loss came from $509.3 million in non-cash goodwill impairment charges. The company has been acquiring water utilities around the country for the past 40 years, so it now has $2.4 billion in goodwill on its balance sheet, after years of amortization (when that was the accounting practice) and after more than a few impairment charges. Hence, the reported loss has to be considered alongside the $473.7 million in cash from operations that shows up on the statement of cash flows. Because of the goodwill, that’s a more accurate measure of American Water Works’ strength; if the company does not take impairment charges (which is likely when it becomes an independent business reporting earnings every quarter), the bottom line is likely to be in the swim.
Upcoming IPOs:
Digital Domain (www.digitaldomain.com; (Nasdaq:DTWO); April 21; $285.3 million post-money valuation): This company creates digital special effects used in movies, television, commercials, and websites. Its staffers have won Academy Awards for their expertise. Digital Domain raked in $78.8 million in revenue in 2007, but it lost $20.2 million. The deal proceeds will be used to pay down debt, which might curb the losses, but not by enough to put the company in the black.
Intrepid Potash (www.intrepidpotash.com; (NYSE:IPI); April 21; $1,886.3 million post-money valuation): Intrepid mines for potassium-based compounds that are used in fertilizers. It’s a profitable business, bringing in $213.5 million in revenue and $29.7 million in profits for 2007. Given increased demand for agricultural production to meet biofuel demand and feed a growing world population, the company is in good shape to grow. The company was formed as a rollup of several different potash mines, and a fraction of proceeds will be used to complete an asset acquisition. The rest will be used for debt repayment and general corporate purposes.
The Worst of the Worst:
When the markets are hot, investors sometimes believe that an IPO is a sure-fire path to wealth. Plenty of IPOs turn out to be disasters, though, and it often has nothing to do with the market and everything to do with the company. (That’s why you have to do research, even in a hot market.) Here’s a look at the two worst IPOs of the past year:
Superior Offshore International ((Nasdaq:DEEP); April 19, 2007; $385.2 million post-money valuation; $21.3 million current market cap): You can’t blame this one on the market. Superior Offshore provides undersea construction services for oil exploration, and that’s a pretty hot market right now. However, this company was making the transition from diving services to offshore oil services, the latter requiring a lot more expensive equipment. With expensive equipment comes the potential for liquidity problems, which Superior Offshore ran into. It hasn’t filed financial statements for almost six months, and it looks like the business is headed for Davey Jones' Locker.
ImaRx Therapeutics ((Nasdaq:IMRX); July 25, 2007; $50 million post-money valuation, $4.3 million current market cap): Should it be called “I’m a wreck?” ImaRx is a biotechnology company looking for treatments for vascular disorders. It had trouble getting its IPO done, and now it’s having trouble making a go of it. Clinical trial results for its lead product for treating stroke, MRX-801, were not as great as hoped. It’s a risk that comes with biotech investing, all in the hopes of making a big profit.
About the Author
Ann C. Logue is a freelance writer and a lecturer in finance at the University of Illinois at Chicago.
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