Secondary stock sales exceed initial offerings of upstarts


Initial public offerings sure can soak up the money, and they definitely soak up their share of attention. But they're not the only -- not even the biggest -- game in town.

For all the fuss, there were more secondary stock offerings than IPOs in the United States last year. Mature companies do secondary offerings -- that is, when a company that's already publicly owned sells more shares -- for different reasons than fledgling companies sell IPOs. And a different breed of investor buys shares in a secondary offering, as an upcoming deal by Baltimore Gas and Electric Co. shows.

BG&E; will sell 4.5 million shares sometime during the week of Feb. 17, company spokesman Arthur Slusark said.

The deal is expected to raise about $144 million before investment banking commissions, though the exact price won't be set until just before the offering.

But BG&E; won't be pouring the money into the type of high-risk, high-return scientific research that Genetic Therapy Inc. or Univax Biologics Inc. are doing. The utility has a more modest goal: It wants to tidy up its balance sheet a bit, Mr. Slusark said.

BG&E;'s capitalization is now 39 percent equity and 61 percent debt, he said.

"We'd like to get [equity] up in the low 40s," he said. "It's one of the things financial houses look at when they rate you. They like utilities to be in the low 40s."

Just as BG&E;'s reasons for going out and raising money through a stock sale are humbler than trying to invent the next generation of central nervous system drugs, as Nova Pharmaceutical Corp. would like to do, the expectations of investors who buy the stock are also more pedestrian.

"There's a lot of interest in BG&E; stock for a couple of reasons," said Tim Schweizer, managing director and head of the private client division at Alex. Brown & Sons Inc. in Baltimore.

"It pays a nice dividend [currently about 6.5 percent of the stock price annually], it's a local company," Mr. Schweizer said.

Whether an offering like a BG&E; secondary is attractive depends on the investor.

On the one hand, Mr. Schweizer admits, "there are people who don't buy utilities because they're too conservative for them." On the other, he said, "Your grandmother I'm not going to have buying 100 shares of a biotechnology company trading at 100 times earnings."

Secondary offerings in general are more conservative than IPOs, said Charles W. Shaeffer, Jr., a broker at Wheat First Securities Inc. in Baltimore. The BG&E; offering -- coming from a mature company, and one in a stable business to boot -- won't behave like Amgen, a 12-year-old pharmaceutical company that has been a star.

"I wouldn't necessarily recommend Baltimore Gas & Electric for someone looking for capital gains," Mr. Shaeffer said. "It may happen . . . but it's definitely not going to pop."

Instead, he said, the stock could trade more like a bond. The attractiveness of that dividend -- which is better than rates on certificates of deposit these days -- would vary depending on the movements of interest rates.

If certificates of deposit go back to 15 percent any time soon, the dividend doesn't look like much. If they stay as low as 5 percent, 6.6 looks like a good pitch.

"A lot of CDs are coming due and a lot of people are looking for alternative investments because interest rates are low," Mr. Schweizer said.

Interest in IPOs goes in phases, says Mr. Shaeffer. When he worked for what is now Ferris Baker Watts Inc., he said, he would lose clients to Alex. Brown, the nation's biggest IPO underwriter, whenever IPOs were hot.

Sometimes, the same clients would straggle back after getting their noses bloodied in IPO investing. But sometimes, like now, the IPO game treats people very well.

"If you're a Brown client or Brown broker, you're doing very well," he said.

Maryland offerings


Recent stock offerings by Maryland-based companies

.. .. .. .. .. .. .Date of.. .. .. ..No. of.. .. ..Initial.. Current

Company.. .. .. .. Offering.. .. .. .shares.. .. ..price.. .. .price

General Physics.. .Sept. 25, 1991.. ..4 million.. .. ..13.. .. ..15 5/8

Micro Prose.. .. .. Dec. 9, 1991.. ..2 million.. .. .. 9.. .. .. 14 7/8

Medlmmune.. .. .. .. Dec. 9, 1991.. 2.5 million.. .. .43 1/2 .. .. .. 40

Oncor.. .. .. .. .. Jan. 28, 1992.. ..3 million.. .. .10 1/2 .. .. ..12 5/8 Nova Pharmaceutica..Jan. 28, 1992.. ..4 million.. .. ..8 1/2 .. .. ..10 1/4 Genetic Therapy.. ..Jan. 30, 1992.. 1.5 million.. .. ..15.. .. .. 14

Univax Biologics.. ..Feb. 4, 1992.. ..4 million.. .. ..12.. .. ..12 5/8

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