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U.S. IPO Week Ahead: Tech And Big Biotech Fill Up A 9-IPO Week

Nine IPOs are scheduled to raise $2.1 billion in the week ahead. Tech and healthcare continue to dominate the IPO market, with four of each this coming week. New filings should also pick up, as companies target post-July 4th launches.

McKesson/Blackstone’s Change Healthcare (CHNG) is the week’s largest IPO, aiming to raise $750 million from common stock, plus $250 million in convertible units. Providing billing and collections software and services used by various healthcare providers, Change’s sticky solution booked $3.3 billion in sales with strong EBITDA margins (28% in FY19), though the company is highly levered, and recently had weak results in some of its largest business units.

The RealReal (REAL) is raising $270 million at a proposed $1.7 billion valuation. The online luxury consignment store is a second act for the founder of Pets.com, who leads the company as co-founder and CEO. Several fast-growing e-commerce IPOs have outperformed this year (Chewy (NYSE:CHWY), Revolve (NYSE:RVLV)), though RealReal has the highest losses by far (-29% EBITDA margin).

Brazil-based Linx (LINX) is raising about $250 million in its US IPO. Like last year’s US IPOs PagSeguro (NYSE:PAGS) and StoneCo (NASDAQ:STNE), Linx provides payment solutions in Brazil, though its core software helps retailers turn POS transaction data into insights that can be analyzed on an ERP system. Listed in Brazil, the company grew sales by 20% in 2018 to $179 million, with a 10% net margin.

As we recently described in a special IPO commentary, June’s flood of biotechs continues this week, including two that are coming public valued at more than $1.5 billion. Viking-backed Adaptive Biotechnologies (ADPT) is a hybrid diagnostics/biotech company, with a fast-growing immuno-sequencing business and a pipeline of preclinical candidates. KKR-backed BridgeBio Pharma (BBIO) has a massive pipeline of 16 clinical programs, mainly focused on genetic diseases.

U.S. IPO Calendar

Issuer
Business

Deal Size
Market Cap

Price Range
Shares Filed

Top
Bookrunners

Cambium Networks (CMBM)
Rolling Meadows, IL

$81M
$363M

$13 – $15
5,800,000

JP Morgan
Goldman

Provides wireless broadband networking products.

Linx
São Paulo, Brazil

$254M
$1,636M

$8.68
29,274,601

Goldman
Morgan Stanley

Brazilian provider of POS/ERP connectivity software and payment services.

Adaptive Biotechnologies
Seattle, WA

$200M
$2,098M

$15 – $17
12,500,000

Goldman
JP Morgan

Provides genetic immunosequencing tests used to diagnose and treat diseases.

BridgeBio Pharma
Palo Alto, CA

$225M
$1,725M

$14 – $16
15,000,000

JP Morgan
Goldman

Late-stage biotech developing therapies for genetic diseases and cancers.

Change Healthcare
Nashville, TN

$750M
$5,401M

$16 – $19
42,857,144

Barclays
Goldman

Provides healthcare revenue cycle management software and services.

Morphic Holding (MORF)
Waltham, MA

$75M
$450M

$14 – $16
5,000,000

Jefferies
Cowen

Preclinical biotech developing oral small-molecule integrin inhibitors for chronic diseases.

Priam Properties (PRMI)
Nashville, TN

$171M
$222M

$18 – $20
9,000,000

BofA ML
Baird

Newly-formed REIT focused on office properties in the Midwest and Southeast.

Karuna Therapeutics (KRTX)
Boston, MA

$70M
$377M

$15 – $17
4,375,000

Goldman
Citi

Phase 2 biotech developing therapies for schizophrenia and other CNS disorders.

The RealReal
San Francisco, CA

$270M
$1,633M

$17 – $19
15,000,000

Credit Suisse
BofA ML

Authenticated online luxury consignment store.

*US IPO – Linx S.A. is currently listed in Brazil

Adaptive Biotechnologies, which provides genetic immunosequencing tests used to diagnose and treat diseases, plans to raise $200 million by offering 12.5 million shares at a price range of $15.00 to $17.00. At the midpoint of the proposed range, it would command a market value of $2.1 billion. Adaptive, which was founded in 2009, booked $59 million in sales over the last 12 months. The Seattle, WA-based company plans to list on the Nasdaq under the symbol ADPT. Goldman Sachs, J.P. Morgan, BofA Merrill Lynch, Cowen and Guggenheim are the joint bookrunners on the deal.

BridgeBio Pharma, a late-stage biotech developing therapies for genetic diseases and cancers, plans to raise $225 million by offering 15.0 million shares at a price range of $14.00 to $16.00. At the midpoint of the proposed range, it would command a market value of $1.7 billion. The Palo Alto, CA-based company was founded in 2015 and plans to list on the Nasdaq under the symbol BBIO. J.P. Morgan, Goldman Sachs, Jefferies, SVB Leerink and five others are the joint bookrunners on the deal.

Cambium Networks, which provides wireless broadband networking products, plans to raise $81 million by offering 5.8 million shares at a price range of $13.00 to $15.00. At the midpoint of the proposed range, it would command a market value of $363 million. Cambium Networks, which was founded in 2011, booked $251 million in sales over the last 12 months. The Rolling Meadows, IL-based company plans to list on the Nasdaq under the symbol CMBM. J.P. Morgan and Goldman Sachs are the joint bookrunners on the deal.

Change Healthcare, which provides healthcare revenue cycle management software and services, plans to raise $750 million by offering 42.9 million shares at a price range of $16.00 to $19.00. At the midpoint of the proposed range, it would command a market value of $5.2 billion. Change Healthcare, which was founded in 2005, booked $3.3 billion in sales over the last 12 months. The Nashville, TN-based company plans to list on the Nasdaq under the symbol CHNG. Barclays, Goldman Sachs, J.P. Morgan, BofA Merrill Lynch and five others are the joint bookrunners on the deal. The company also plans to raise $250 million in a concurrent offering of convertible tangible equity units at $50 per unit.

Karuna Therapeutics, a Phase 2 biotech developing therapies for schizophrenia and other CNS disorders, plans to raise $70 million by offering 4.4 million shares at a price range of $15.00 to $17.00. At the midpoint of the proposed range, it would command a market value of $377 million. The Boston, MA-based company was founded in 2009 and plans to list on the Nasdaq under the symbol KRTX. Goldman Sachs, Citi and Wells Fargo Securities are the joint bookrunners on the deal. Insiders intend to purchase up to $30 million of the IPO (43% of the deal).

Linx, a Brazilian provider of POS/ERP connectivity software and payment services, plans to raise $254 million by offering 29.3 million shares at a price of $8.68, its as-converted price on the Brasil Bolsa Balcão (ticker: LINX3). At that price, Linx would command a market value of $1.6 billion. Linx, which was founded in 2004, booked $183 million in sales over the last 12 months. The São Paulo, Brazil-based company plans to list on the NYSE under the symbol LINX. Goldman Sachs, Morgan Stanley, Jefferies, BofA Merrill Lynch and Itau BBA are the joint bookrunners on the deal.

Morphic Holding, a preclinical biotech developing oral small-molecule integrin inhibitors for chronic diseases, plans to raise $75 million by offering 5.0 million shares at a price range of $14.00 to $16.00. At the midpoint of the proposed range, it would command a market value of $450 million. The Waltham, MA-based company was founded in 2014 and plans to list on the Nasdaq under the symbol MORF. Jefferies, Cowen, BMO Capital Markets and Wells Fargo Securities are the joint bookrunners on the deal. Insiders intend to purchase up to $30 million of the IPO (40% of the deal).

Priam Properties, a newly-formed REIT focused on office properties in the Midwest and Southeast, plans to raise $171 million by offering 9.0 million shares at a price range of $18.00 to $20.00. At the midpoint of the proposed range, Priam Properties would command a market value of $222 million. The Nashville, TN-based company was founded in 2018 and plans to list on the NYSE under the symbol PRMI. BofA Merrill Lynch, Baird and RBC Capital Markets are the joint bookrunners on the deal.

The RealReal, an authenticated online luxury consignment store, plans to raise $270 million by offering 15.0 million shares at a price range of $17.00 to $19.00. At the midpoint of the proposed range, The RealReal would command a market value of $1.6 billion. The RealReal, which was founded in 2011, booked $230 million in sales over the last 12 months. The San Francisco, CA-based company plans to list on the Nasdaq under the symbol REAL. Credit Suisse, BofA Merrill Lynch, UBS Investment Bank, KeyBanc Capital Markets and Stifel are the joint bookrunners on the deal.

IPO Market Snapshot

The Renaissance IPO Indices are market cap weighted baskets of newly public companies. As of 6/20/19, the Renaissance IPO Index was up 39.8% year-to-date, while the S&P 500 had a gain of 19.0%. Renaissance Capital’s IPO ETF (NYSE: IPO) tracks the index, and top ETF holdings include Okta (NASDAQ:OKTA) and Elanco (NYSE:ELAN). The Renaissance International IPO Index was up 13.2% year-to-date, while the ACWX was up 13.7%. Renaissance Capital’s International IPO ETF (NYSE: IPOS) tracks the index, and top ETF holdings include SoftBank and Xiaomi.

Editor’s Note: The summary bullets for this article were chosen by Seeking Alpha editors.

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Akero Therapeutics Announces Pricing Of Initial Public Offering



Wednesday, 19 Jun 2019 09:20pm EDT 

Akero Therapeutics Inc ::AKERO THERAPEUTICS ANNOUNCES PRICING OF INITIAL PUBLIC OFFERING.AKERO THERAPEUTICS INC – PRICING OF ITS INITIAL PUBLIC OFFERING OF 5,750,000 SHARES OF COMMON STOCK AT A PUBLIC OFFERING PRICE OF $16.00 PER SHARE. 

Source: Initial Public Offering Search Results
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Slack to use uncommon IPO method: report

Workplace messaging platform Slack is set to use an uncommon listing strategy for its initial public offering (IPO) on Thursday, Reuters reported.

Using a direct listing, which differs from a traditional IPO in that it does not raise fresh funds, could likely yield a $16 billion valuation on the New York Stock Exchange.

The direct listing model was used by music streaming giant Spotify when it went public last year.

“We think the jury is out on whether this is the right move or not,” Kathleen Smith, a principal and manager of IPO ETFs at Renaissance Capital, told Reuters. “Looking at Spotify, it takes a little time for the stock to get established after a direct listing.”

Slack’s public debut comes shortly after the listings of ride-hailing companies Uber and Lyft, which both had disappointing starts to trading.

Spotify’s direct listing in April 2018 was perceived as a success at the time, with a healthy number of buyers and sellers. It is now trading at 15 percent below its initial offering.

Direct listings allow companies to decrease investment banking fees and avoid agreements that would otherwise prevent many current shareholders from selling stock.

Slack expects to pay $22.1 million in fees to its financial advisers for the listing, according to Reuters.

In comparison, Snap paid $85 million in commissions to banks for its 2017 IPO, which was worth about $31 billion at the time.

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Slack tries uncommon tactic to ensure successful IPO listing

As 2019’s bumper crop of initial public offerings either languishes or wildly exceeds expectations, Slack Technologies Inc. is taking a route to the trading floor that it hopes will yield a much more boring outcome.

Following in the footsteps of music-streaming service Spotify Technology SA last year, the workplace messaging application is set to start trading on the New York Stock Exchange Thursday via a direct listing. It’s just the second large company to test the unusual method and will be closely watched by other potential candidates to see how successfully the company and its advisers pull it off.

Investors got their first hint of how things are going when Slack’s reference price was set at $26 per share on Wednesday. Unlike the offering price paid by investors in a traditional IPO, the reference price doesn’t establish the valuation, though it’s partly based on recent trading in private markets. Its main purpose is to provide a starting point to allow trading to begin under New York Stock Exchange rules.

With IPO heavyweight advisers from Goldman Sachs Group Inc., Morgan Stanley and Allen & Co. helping to steer Slack through its listing alongside market maker Citadel Securities, all eyes will be on how the first day of trading plays out. But the company and its investors aren’t looking for a meaningful stock pop — and want to avoid the volatility — that often accompanies high-profile share sales, according to a person familiar with the process.

On Wednesday, Slack said that its investors had converted additional Class B stock to Class A shares, increasing the number that could be sold to 194 million from 181 million, out of a total of 504.4 million. Especially because there’s no lock-up period, there’s a risk of too few investors wanting to buy or too many wanting to sell.

“A direct listing can be considered risky for a variety of reasons,” Alejandro Ortiz, an analyst at SharesPost, said in a note. “There is an increased chance of substantially more supply than demand for Slack’s shares. All of this could result in heightened volatility in the early hours and days of trading.”

Reference Price

Fifteen months after its own direct listing, Spotify trades about 12% above its reference price of $132, at about $148 a share on Wednesday. That’s well below where the stock opened on its first day of trading in April 2018, though, at $165.90 apiece.

On Thursday, much of the attention at the exchange will be focused on one man. Pete Giacchi, a longtime market maker at the NYSE for Citadel Securities, will be tasked with opening the stock –- just as he was for Uber Technologies Inc.’s listing in May, people with knowledge of the matter said. It could be a long wait: Spotify’s shares took more than three hours to start trading, and it will take a while to make sure that the pricing and trading volumes coming in are at levels that Slack and its advisers are comfortable with.

Supply, Demand

Morgan Stanley, as the named adviser to the designated market maker, will be constantly trying to get a sense of supply and demand for the shares to advise on that opening price. The bank’s team includes global head of technology capital markets, Colin Stewart, as well as David Chen, who leads software banking. John Paci, the co-head of U.S. equities trading, will help advise the designated market maker on where the stock should open based on buying and selling interest gleaned from investors, according to people familiar with the details.

At Goldman Sachs, the work will be led by Nick Giovanni, co-head of the global technology, media and telecommunications group, equity capital markets head David Ludwig and Will Connolly, co-head of the West Coast financing group and head of technology ECM.

One thing Slack’s listing will have in common with an IPO: executives including Chief Executive Officer Stewart Butterfield and finance chief Allen Shim are expected to be pacing the floor of the NYSE for the open. They may not stick around all day, though. They will likely spend some time at the offices of their advisers before celebrating with employees and customers, according to a person with knowledge of the matter.

Representatives for Slack, Goldman Sachs, Morgan Stanley and Citadel Securities declined to comment.

Private Funds

Slack’s decision to bypass a traditional IPO — and the opportunity it brings to raise funds — is yet another sign of how benevolent private markets have been to tech startups in recent years. Slack’s earliest major investor, venture capital firm Accel, has directed a fire hose of money at the messaging company over the years, investing from several of its funds to accumulate a 23.8% stake.

In addition to Accel, Slack captured the imagination of elite investors such as Andreessen Horowitz and Social Capital. But it was SoftBank Group Corp.’s behemoth Vision Fund, which also owns stakes in Uber and WeWork Cos., that accelerated Slack’s fundraising when it led a $250 million investment in 2017.

One of the main reasons that Slack has remained well capitalized, however, is that it burns through less cash than some of SoftBank’s other investments. Uber, for instance, accumulated more than $10 billion in operating losses in three years. While Slack expects higher-than-usual losses in the second quarter, that still amounts to only about $75 million to $77 million for the three months, even including expenses related to the listing.

Growth vs. Profitability

The high demand for IPOs by the likes of money-losing companies including Uber, Lyft Inc. and Beyond Meat Inc. proves that investors remain focused on growth prospects over profitability –- in the short term at least.

With Uber leading the pack with its $8.1 billion offering, 79 companies have raised $28.88 billion in U.S. IPOs this year, according to data compiled by Bloomberg. That includes five other listings topping $1 billion, including the $2.34 billion IPO by Uber’s ride-hailing rival Lyft.

With no lock-up period for a direct listing, Slack investors could be jittery about any updates from the company, perceived competitive threats or other risks.

Tiny Speck

In its filings, Slack has warned investors that it’s a relatively new business, launching only in 2014 after existing for several years as a gaming company called Tiny Speck. Its rocket-ship ascent has attracted plenty of investors, but gives new potential shareholders only a limited trajectory to study.

Another challenge for Slack is one that fellow mega startups like Uber have grappled with, namely whether they can move beyond the core offering that their early years of success were built on. While Slack has improved its product so that it can serve larger companies, many customers still consider it an easy-to-use, aesthetically pleasing workplace messaging platform, despite speculation that it could evolve into a catch-all portal for business applications.

One thing that could make Slack’s debut more unpredictable than Spotify’s is its investor base. Because the company’s ownership is more concentrated among fewer, larger shareholders, it could be more difficult to gauge the supply of shares that are likely to be traded, one person with knowledge of the process said. Both buyers and sellers may also hang back on day one to see how trading goes before getting involved: Just 30 million of Spotify shares changed hands in its trading debut, less than a third of the total available.

Now read: Dell, HP, Intel and Microsoft join forces to fight Trump tariff

Source: Ipo Search Results
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Stoke Therapeutics Announces Pricing of Initial Public Offering

Stoke Therapeutics Announces Pricing of Initial Public Offering

Stoke Therapeutics, Inc., a biotechnology company that is pioneering a
new way to treat the underlying cause of genetic diseases by precisely
upregulating protein expression, todayannounced the pricing of its
initial public offering of 7,891,110 shares of its common stock at a
price to the public of $18.00 per share. All of the shares are being
offered by Stoke. The shares are expected to begin trading on The Nasdaq
Global Select Market on June 19, 2019 under the symbol “STOK.” The
offering is expected to close on June 21, 2019, subject to customary
closing conditions. The gross proceeds from the offering, before
deducting underwriting discounts and commissions and other offering
expenses payable by Stoke, are expected to be approximately $142.0
million. In addition, the underwriters have been granted a 30-day option
to purchase up to an additional 1,183,666 shares of common stock.

J.P. Morgan Securities LLC, Cowen and Company, LLC and Credit Suisse
Securities (USA) LLC are acting as joint book-running managers for the
offering. Canaccord Genuity LLC is acting as lead manager.

A registration statement relating to these securities has been filed
with the Securities and Exchange Commission and became effective on June
18, 2019. The offering is being made only by means of a prospectus. A
copy of the final prospectus relating to the offering, when available,
may be obtained from J.P. Morgan Securities LLC, c/o Broadridge
Financial Services, Attention: Prospectus Department, 1155 Long Island
Avenue, Edgewood, New York 11717, or by telephone: (866) 803-9204, or by
emailing prospectus-eq_fi@jpmchase.com;
from Cowen and Company, LLC c/o Broadridge Financial Solutions,
Attention: Prospectus Department, 1155 Long Island Avenue, Edgewood, New
York 11717, or by telephone: (631) 592-5973, or by emailing PostSaleManualRequests@broadridge.com;
or from Credit Suisse Securities (USA) LLC, Attention: Prospectus
Department, Eleven Madison Avenue, 3rd floor, New York, NY 10010, or by
telephone: (800) 221-1037, or by emailing usa.prospectus@credit-suisse.com.

This press release shall not constitute an offer to sell or the
solicitation of an offer to buy, nor shall there be any sale of these
securities in any state or jurisdiction in which such offer,
solicitation, or sale would be unlawful prior to registration or
qualification under the securities laws of any such state or
jurisdiction.

About Stoke TherapeuticsStoke Therapeutics is a
biotechnology company that is pioneering a new way to treat the
underlying causes of severe genetic diseases by precisely upregulating
protein expression to restore target proteins to near normal levels.
Stoke aims to develop the first precision medicine platform to target
the underlying cause of a broad spectrum of genetic diseases in which
the patient has one healthy copy of a gene and one mutated copy that
fails to produce a protein essential to health. These diseases, in which
loss of approximately 50 percent of normal protein expression causes
disease, are called autosomal dominant haploinsufficiencies. Stoke was
launched with investments by Apple Tree Partners. Stoke is headquartered
in Bedford, Massachusetts with offices in Cambridge, Massachusetts.

View source version on businesswire.com: https://www.businesswire.com/news/home/20190618006072/en/

SOURCE: Stoke Therapeutics, Inc.

Dawn KalmarVice President, Head of Corporate Affairsdkalmar@stoketherapeutics.com781-303-8302

Copyright Business Wire 2019

**********************************************************************

As of Friday, 06-14-2019 23:59, the latest Comtex SmarTrend® Alert,
an automated pattern recognition system, indicated a DOWNTREND on
04-20-2012 for J

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IPO Update: Priam Properties Readies $171 Million IPO

Quick Take

Priam Properties (PRMI) has filed to raise $171 million in a U.S. IPO of its common stock, per an amended registration statement.

The company is planning to acquire and operate office buildings in growth-oriented locales in the United States.

PRMI’s pro forma dividend yield was 4.16% in 2018, so for investors who want a dividend-yielding stock coupled with Priam’s strategy, the IPO may be worth looking into more closely.

Company

Nashville, Tennessee-based Priam was formed to acquire multi-tenant office buildings in the Midwest and Southeast U.S. in major cities with high concentrations of Millennial workers.

Management is headed by CEO Abhishek Mathur, who was previously Chief Financial Officer and Brock Capital and an attorney. He has more than 14 years of experience in real estate private equity for a range of asset types.

The firm seeks to acquire and manage properties with the following characteristics:



Upon completion of the IPO and initial transactions, PRMI plans to own the following property interests:



Market

According to a 2019 Barron’s report on the state of the U.S. office market, many office REITs are at ‘bargain prices’ due to difficulty in achieving meaningful rent growth.

Office REITs have been market underperformers compared to hotel, mall, and apartment REITs due to ‘worries that the U.S. economic expansion has finally started to deteriorate.

Of the office sector, Danny Ismail at Green Street said it ‘will continue to be challenged,’ and ‘growth in most major markets doesn’t seem to be enough to push pricing power…it’s a tough business. Capex is high, and fundamental growth is tough to come by.’

Management counters this by stating that it is pursuing an ‘urban node’ strategy to ‘acquire well-located multi-tenant office properties in urban nodes where we believe we will face limited competition from institutional investors and can effectively execute our value-add repositioning programs to generate attractive risk-adjusted returns for our stockholders.’

Financial Performance & IPO Details

Below are relevant financial metrics derived from the firm’s registration statement (Pro Forma):

Total Assets $ 336,607,445
Total Liabilities $ 113,246,775
2018 Revenue $ 33,690,027
2018 Net Operating Income $ 18,744,925
2018 Adjusted Funds From Operations [AFFO] $ 8,143,080

Sources: Company registration statement and IPO Edge

PRMI intends to sell nine million shares of common stock at a midpoint price of $19.00 per share for gross proceeds of approximately $171 million, not including the sale of customary underwriter options.

Assuming a successful IPO at the midpoint of the proposed price range and excluding the exercise of underwriter options, the company’s market capitalization at IPO would approximate $196.8 million.

Per the firm’s most recent regulatory filing, it plans to use the net proceeds as follows:

approximately $17.5 million to acquire ownership interests in certain of the properties in our initial portfolio pursuant to the formation transactions;

approximately $61.1 million to repay outstanding indebtedness as described in the table below; and

the remaining net proceeds for future acquisitions and general corporate purposes, including working capital, future acquisitions, and, potentially, paying distributions.

Management’s presentation of the company roadshow is available here.

Listed underwriters of the IPO are BofA Merrill Lynch, RBC Capital Markets, Baird, Stifel, BB&T Capital Markets, D.A. Davidson & Co., and Janney Montgomery Scott.

Commentary

Priam is seeking investment from public markets during a dearth of REIT IPOs. Only one REIT has gone public in the U.S. in 2019, that of Postal Realty Trust (PSTL), and it has performed poorly, dropping from $17.00 at IPO to its current $15.00 per share.

Priam’s pro forma financials show the firm would have generated AFFO in 2018 of $0.79 per share. Assuming a $19.00 per share price, this is a gross yield of 4.16%.

According to a current NAREIT report, a basket of publicly held U.S. office REITs paid an average dividend yield of 3.37%, so based on this comparison, PRMI’s yield would be approximately 19% higher.

The market opportunity for Priam’s approach, which is to focus its capital on higher growth regions that will attract younger demographic workers, has some merit to it, at least on paper.

Whether the firm will be able to acquire properties at a reasonable price and then monetize their growth potential are matters of execution and external market dynamics.

So, for investors who believe in PRMI’s strategy and are fine with its prospective dividend yield of around 4%, the IPO appears to be a buy at up to $19.00 per share.

Expected IPO Pricing Date: June 27, 2019.

Members of IPO Edge get the latest IPO research, news, and industry analysis for all U.S. IPOs. Get started with a free trial!

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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Remember That Aramco IPO? Prince Mohammed Does.

Prince Mohammed, the next in line for the throne of Saudi Arabia, broke the silence about Aramco in an interview released this past weekend. He spoke with Asharq Al-Awsat, a Britain-based but Saudi owned news site, and the interview was translated by Arab News, the English language Saudi daily. This is the first mention we have had of the Aramco IPO from the Saudi government or the company in several months. 

Now Prince Mohammed says, “We are committed to the initial public offering of Saudi Aramco… I expect that it will happen between 2020 and the beginning of 2021.” He has changed his projections for an IPO several times since he first announced its likelihood in an interview with The Economistat the start of 2016. While it was first expected in 2017 or 2018, the IPO has slowly been pushed back with later projected dates given every few months. Nevertheless, Aramco executives and personnel from the Energy Ministry have consistently insisted that the IPO is “on track.” The young and anxious prince just gave the most details about IPO plans in more than 6 months.

Mohammed’s original projections for an Aramco IPO were never feasible. The company could not be ready before late 2019 at best, because before 2016, Aramco didn’t keep its books according to international standards. It wasn’t until the end of 2018, that Aramco had 3 years of appropriately-kept books—essentially a requirement before an IPO. Moreover, before the IPO idea was broached there was no formal paperwork delineating the corporate structure, incorporation or bylaws. There likely was no written concession agreement granting the company access to the oil reserves by the kingdom. These all needed to be created, and that only happened in 2018. Therefore, the early plans for an IPO by 2018 or earlier were never realistic. 

But the prince’s original intent for an IPO was to provide cash for the Public Investment Fund (PIF), which is the kingdom’s sovereign wealth fund. The PIF has been around for almost 50 years, but it has been relatively small. Mohammed bin Salman plans to turn it into a giant investment vehicle. He has said that once he moves ownership of Aramco to the PIF, the PIF would have a value of two to three trillion dollars. He originally envisioned selling five percent of Aramco at a two trillion dollar valuation, which would infuse his investment fund with $100 billion in cash.

Back in 2016 and 2017, Mohammed bin Salman’s PIF needed cash as it sought to invest in trendy startups, as well as Saudi projects like recreation concepts, real estate and planned mega-cities. An Aramco IPO was supposed to provide that cash. But new developments indicate that perhaps an Aramco IPO is no longer a serious endeavor, most likely because the PIF may not even need the cash right now.

Circumstances have changed. The PIF decided to sell the shares it owned in Saudi Petrochemicals giant SABIC to Aramco for $70 billion, though that sale won’t go through until next year. It began taking loans in 2018 to provide much needed immediate cash as well. It backed out of a $45 billion commitment to SoftBank’s Vision Fund II, and several companies decided to refuse discussed investments from Saudi Arabia following the Saudi public relations nightmare that resulted from the murder of Jamal Khashoggi. Moreover, the PIF may be rethinking its strategy of investing in hot start-ups after the UBER IPO bombed and Saudi Arabia’s late-stage investment didn’t bring in nearly as large as a return as the PIF had probably hoped it would.

There are still good reasons to take Aramco public,  but they don’t offer any special benefits to prince Mohammed or his father, the king. For one, Aramco’s new charter allows the company to grant shares to its employees. If it did this and then went public, it could be a huge bonus for employees and a potential incentive to retain talent. This would also function like a kind of post-IPO domestic stimulus for the Saudi economy, as it would infuse capital into Saudi Arabia’s private sector.

For Aramco, an IPO would provide some reassurance that the monarch and government would not act capriciously toward the company. Aramco’s traditional independence has been imperiled in recent years. Though only five percent of the company may be listed, at least initially, the disclosure rules and public feedback that come with a public listing would help balance the risks of Saudi Arabia’s authoritarian rule. 

Regardless, it does seem that perhaps the Saudi monarchy and the PIF are no longer desperate for the cash an Aramco IPO would provide. An Aramco IPO may very well happen, but it may not happen until the prince, the government or the PIF needs cash again.

Another note: last week, news came that SABIC is embarking on a partnership with Exxon in the US. But there was no clarification of who was behind this move. In 2020, Aramco is supposed to take ownership of 70% of SABIC, but currently the PIF still owns and controls it. It is possible both the PIF and Aramco approve of this deal, but the news was unclear. If Aramco was not part of the negotiations or at least consulted throughout the process, it raises more questions about whether Aramco is simply being forced to buy SABIC and whether Aramco is losing its historic independence from the government. 

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Housing starts, Fed policy update, Slack IPO

A look at some of the key business events and economic indicators upcoming this week:

HOUSING BELLWETHER


The government’s monthly snapshot of U.S. housing starts should provide insight into the state of the new-home market.

The Commerce Department is expected to report Tuesday that builders broke ground on new single-family homes and other residential housing projects at a faster pace in May than in the previous month. U.S. home construction accelerated in April, led by an uptick in single-family homes.

Housing starts, monthly, seasonally adjusted annual rate:

Dec. 1,142,000

Jan. 1,291,000

Feb. 1,149,000

March 1,168,000

April 1,235,000

May (est.) 1,250,000

Source: FactSet

THE FED SPEAKS

The Federal Reserve delivers an update on interest rates and the U.S. economy on Wednesday.


The remarks will follow a two-day meeting of the central bank’s policymakers. The Fed is facing pressure to cut its key short-term rate amid signs of slowing economic growth. Many stock market investors worry that the U.S. trade war with China will hurt corporate profits, and expect the Fed to cut rates at its meeting in July.

SLACK IPO

A popular messaging platform is set to go public.

Slack Technologies is expected to make its stock market debut Thursday. The company plans to list on the New York Stock Exchange under the ticker “SK.” Slack’s IPO follows those of Pinterest, Lyft, Uber and Zoom.



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IPO Gives Chinese Couple a ‘Hansoh’ Sum

Thanks to a big IPO on the Hong Kong Stock Exchange, a Chinese couple have become China’s richest husband-and-wife team.

The initial public offering of Hansoh Pharmaceutical Group, which closed up 37.3% on its debut on Friday, made Chairwoman Zhong Huijuan China’s third-richest woman. Zhong’s husband, Sun Piaoyang, is already worth $9.8 billion, according to Forbes

Together, Zhong and Sun have a $19.5 billion bank balance, which would make them wealthier than the Sackler family that owns OxyContin-maker Purdue Pharma, at $14 billion. They’re also worth considerably more than Robin Li and Ma Dongmin, the husband-wife team who run Baidu  (BIDU) and previously China’s top power couple, worth US$8.8 billion.

Zhong owns 68% of Hansoh, which now has a market capitalization of $14.2 billion in U.S. dollars. That values her stake at $9.7 billion. Among China’s wealthiest women, only the property developers Yang Huiyan of Country Garden Holdings (CTRYY) and Longfor Properties (LGFRY) chairwoman Wu Yajun are worth more. Not bad for Zhong, who quit her job as a chemistry teacher to enter the drug business.

Zhong is riding the rapid growth in China’s pharmaceutical industry, as the country concurrently gets richer and older. Revenue for Hansoh rose 24.8% in 2018, to $1.1 billion. Profits climbed 19.2%, to $275 million.

The company generated roughly $1 billion from the IPO. Singapore’s sovereign wealth fund GIC is one of the cornerstone investors. Hansoh plans to use 45% of the IPO money to invest in research and development, with a quarter of that to build improved as well as new product lines. An additional 20% goes to sales promotions, and 10% will be kept as working capital.

Sun has led another drug company, Jiangsu Hengrui Medicine, since 1990. He has turned it from a state-owned company founded in 1970 into a highly profitable maker of medicine to combat cancer, with a small-molecule drug treatment for advanced gastric cancer, as well as cardiovascular disease, inflammation and central-nervous system conditions.

In May 2018, Forbes named Jiangsu Hengrui No. 64 out of the 100 most-innovative companies in the world. But that did not help Jiangsu Hengrui’s market value. It was a torrid year for the stock, which lost 35.1% between May and the end of the year. The shares have advanced 39.4% so far in 2019, considerably bigger than Hansoh as a US$39.2 billion company.

Hansoh Pharmaceutical makes anti-infection and anti-tumor drugs, too, generating around half of sales from cancer treatments. It is far more accessible to overseas’ investors, thanks to its Hong Kong listing, than Jiangsu Hengrui, which went public in 2000 with a listing in Shanghai.

Investors have clearly not been deterred by an investigation that the Chinese authorities have launched into potential kickbacks paid by drugmakers to doctors and hospital administrators, to get their drugs used.

Hansoh Pharmaceutical is on the list of 77 pharmaceutical companies released earlier this month that China’s National Healthcare Security Administration and the Ministry of Finance are investigating. The Chinese arms of Sanofi (SNY) , Eli Lilly (LLY) and Bristol-Myers Squibb (BMY) are also on the list.

There’s suspicion that the embarrassment over the U.S. college admissions scandal may have prompted the investigation. The biggest bribe allegedly paid to college consult Rick Springer in the “Varsity Blues” case came from Zhao Tao, the chairman of Shandong Buchang Pharmaceutical, which is also on the list. Zhao says he was acting in a private capacity when he helped his daughter, “Molly” Zhao Yusi, get into Stanford University.

Springer allegedly paid a half million dollars to the Stanford University sailing team, and tried to get Molly Yao recruited to the team. He allegedly pocketed the rest of the $6.5 million paid by Zhao. The former Stanford sailing coach John Vandemoer reportedly pleaded guilty to racketeering, this week receiving a sentence of a day in prison, a $10,000 fine, and two years of supervised release. Stanford fired him after his plea.

It is the first conviction in the case, which has been an embarrassment in China, where aggressive parents will go to great lengths to push their children’s education. The second-largest alleged payment, of $1.2 million to get a student into Yale, also came from a Chinese family.

But there are also problems within the Chinese pharmaceutical industry itself. Doctors say it is common practice to supplement your income by accepting “grey money” from drug companies to push their products.

A maker of traditional Chinese medicine, Kangmei Pharmaceutical, said in April that it had overstated its cash holdings by as much as $4.3 billion. That led to a regulatory probe, with China’s stock watchdog finding the company used related parties to manipulate its shares.

Hansoh may come under a more-generic form of pressure as a result of the investigations. The Chinese government is on a long-term push to drive down the price of drugs. The government says it will instigate a second round of Group Purchase Organization price cuts for the national health service by September.

That would put pressure on margins at drugmakers. Those with proprietary treatments would likely fare better than those making generics. But Jiangsu Hengrui reportedly saw the price of its hypertension drug Irbesartan slashed 60% in a round of cuts in December.

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GFBTU and IDWF Signed MOU on Protection of Domestic Workers’ Rights in Bahrain


GFBTU and IDWF Signed MOU on Protection of Domestic Workers’ Rights in Bahrain – World News Report – EIN News

























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